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Streamlining listing requirements - From contract to law

Finsec Law Advisors

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Based on the proposals made during the SEBI board meeting of November 19, 2014,  SEBI on September 2, 2015 notified the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations). The Listing Regulations streamline and consolidate the erstwhile listing agreement requirements for different kinds of securities across various segments of the stock exchanges into a single comprehensive code. The regulations seek to establish sector and security agnostic principles which would serve as a guide for listed entities for making disclosures. In addition, all related disclosure requirements have been classified and collated to ensure ease of reference.

The Listing Regulations will come into force on December 1, 2015. The regulations would be applicable to all listed securities and not just to equity shares and convertible securities.

The Listing Regulations also align the existing listing requirements with the provisions of the Companies Act, 2013. For related party transactions (RPTs), the requirement to pass a special resolution (75%) has been replaced by an ordinary resolution (50%) with a prohibition on related parties from voting. Another major step is that the Listing Regulations now provide a framework for re-classification of promoters as public shareholders under certain circumstances. Although the idea of providing such a framework is good, the conditions for such re-classification may have to be revisited. The said norms regarding RPTs and re-classification of promoters have already come into force while the rest of the provisions will be applicable from December 1, 2015.

From here on, the listing agreement would be reduced to a fraction of its previous length and listed entities would have a period of six months form the notification of the Listing Regulations to execute it. Stock exchanges would be responsible for ensuring compliance with the listing obligations, and would be empowered to take action in case of non-compliance.

Overall, the conversion is a step in the right direction. However, given the principle based approach, materiality standards and subjective disclosure requirements are bound to oscillate for a while after the regulations come into force. On the brighter side, this is a major step to bring up the quality of post-listing disclosures to match primary market disclosures. Significantly, the Listing Regulations elevate the erstwhile contractual obligations of listed companies under the listing agreements to regulatory obligations.