Sebi panel considers asking companies to regularly disclose risk factors

As part of its attempts to empower investors and help them take better informed investment decisions, the Securities and Exchange Board of India (Sebi) is considering if it should ask companies to disclose risk factors on a regular basis after listing.  

This assumes significance as companies have to disclose all the risk factors as part of the draft red herring prospectus (DRHP) that they file at the time of making an initial public offering (IPO). But once listed, there is no regulatory obligation to disclose the risk factors that could affect the business potential of the company.  

The capital market regulator has already put in place a committee that would look at harmonising the regulatory requirements mandated at the time of going public and thereafter during the entire life cycle of staying listed on a stock exchange.  

“Sebi has formed an ‘Expert Committee for Facilitating Ease of Doing Business and Harmonisation of the Provisions of ICDR and LODR Regulations’ recently and the committee members have even met once,” said a person familiar with the development.  

The Sebi (Issue of Capital and Disclosure Requirements) Regulations—commonly known as ICDR Regulations—have laid down the rules that companies have to follow when making an initial public offer (IPO) while the Sebi (Listing Obligations and Disclosure Requirements) Regulations, known as LODR Regulations, state the regulatory requirements for all listed entities.  

Sources further add that one of the key terms of reference for the committee is to evaluate ways in which companies can be mandated to disclose risk factors on an ongoing basis – at regular intervals just like financial results are declared.  

“Companies have to disclose each and every risk factor at the time of raising funds but once they are listed, there is no such regulatory obligation. The committee will evaluate if something like an annual information memorandum can be made mandatory for all listed companies wherein the risk factors can be disclosed,” said the person quoted above, wishing not to be named.  

The committee has been formed under the chairmanship of S K Mohanty, a former whole-time member of Sebi, and has representations from various market sections, including stock exchanges, lawyers, proxy advisory firms and broking companies. It has also officials from the Ministry of Finance and the Department of Economic Affairs (DEA).  

Among other things, the committee has also been given the mandate to suggest ways to enhance the ease of doing business quotient in the market and two working groups have been formed within the committee – one for ease of doing business and the other to harmonise the ICDR and LODR regulations.   

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