The Sebi recently extended the timeline for implementation of norms that require firms to confirm or deny market rumours, thus providing a breather to India Inc.Despite the deferment, legal experts have called the move “retrograde”, saying this will not only affect M&A deals but also lead to unnecessary fluctuations in share prices.
The reason: Parties involved in M&A discussions have to cautiously monitor the disclosure of sensitive information. Any lapse could not only lead to a collapse of the deal, but separate regulatory action too.
“When a deal such as M&A or private investment, or even a related-party transaction is in the works, entities involved cannot officially comment or divulge information. Much of the contours of the deal are worked between the handshake and actual execution. Many a time, deals go into cold storage when some mismatch arises. Parties involved cannot speak during the discussion stage, and doing so will only affect the deal further,” he pointed out.
Others say deals are agreed upon at a pre-determined price, but any rumour and a subsequent confirmation/denial (as mandated) will drive share prices to levels that could stall the deal.
“The regulations further require the entity to disclose the ‘current stage of such event or information’. However, given the nature of business and transactions carried out by these top listed companies, this could have possible implications on the confidentiality clause for transactions/business ventures in pipeline,” said Manmeet Kaur, partner at Karanjawala & Co.
She highlighted that certain industries and roles prohibit any public or official statement by the firm, as they could be signatories to certain non-disclosure agreements. This could create a conflict.Further, to ensure compliance within 24 hours, companies have to deploy numerous resources for the proper scanning of various media platforms, including but not limited to web-based, print, news or social media across various regions and languages.Companies won’t be the only ones at the receiving end. The 24-hour deadline could discourage speculation, thus diminishing market participation and impacting short-term trading strategies.
Not only that, there is also the risk of competitors holding others to ransom.
A lawyer who spoke on the condition of anonymity, said: “Who’s stopping an entity or individual from spreading inaccurate and speculative reports with the intention of forcing the company involved to officially confirm or deny the news within 24 hours, thus throwing a spanner in their deals and also impacting share prices.”
For the top 100 listed entities by market capitalisation, the new date of implementation is February 1, 2024. For the top 250 listed entities, it is August 1, 2024. The earlier dates were October 1, 2023 and April 1, 2024 respectively.
