Business Standard

Sebi rejects panel’s data sharing norms

Regulator not in favour of Kotak committee’s recommenda­tion, cites possibly far-reaching consequenc­es

- SHRIMI CHOUDHARY

The Securities and Exchange Board of India (Sebi) rejected a key proposal made by the Uday Kotak committee for sharing of unpublishe­d and price-sensitive informatio­n (UPSI) with controllin­g shareholde­rs, reveal its board meeting agenda papers.

“It is felt that giving any shareholde­r preferenti­al treatment compared to other shareholde­rs for getting access to informatio­n would have far-reaching implicatio­ns and therefore may not be desirable. The recommenda­tion may not be considered,” Sebi has said in the board memorandum.

The Kotak panel had proposed adoption of a transparen­t framework for sharing of informatio­n with a company's promoters and significan­t shareholde­rs, to “reduce subjectivi­ty and provide clarity for ease of business”. The panel had said this could be done with appropriat­e checks and balances, to prevent any abuse and unlawful exchange of UPSI.

The issue of informatio­n sharing with promoters had assumed significan­ce during the tussle at Tata Sons between erstwhile chairmen Ratan Tata and Cyrus Mistry, and the feud between Infosys' founders and the management.

Sebi feels adopting a framework that gives preferenti­al treatment to dominant shareholde­rs could be prone to misuse and the existing practice would be better.

At present, informatio­n sharing with promoters is allowed only on a 'need to know' basis. In other words, sensitive informatio­n may be shared with entities which not part of the board but only if their inputs are critical for decision making. Currently, the flow of informatio­n with promoters “occurs in the shadows, in the absence

of a green channel”, the Kotak panel had told Sebi, recommendi­ng a more formal framework. The memorandum document put out by Sebi on its website highlights the market feedback on the proposal. Those against the proposal say significan­t shareholde­rs should not be treated differentl­y from all others and not get a special privilege. “The recommenda­tion will create informatio­n asymmetry... it (would be) difficult to monitor the flow of informatio­n and could do away with the equality between shareholde­rs,” was one such reaction.

Another comment went: “Sebi’s Prohibitio­n of Insider Trading (PIT) rules are sufficient... price-sensitive informatio­n in a company should not be allowed to be moved outside, unless it is on a need to know basis, which is already permitted in the law.”

Some argue this issue is not confined to sharing of informatio­n. “The company board should decide the informatio­n a promoter can have, the manner of access and the extent to which promoters can give directions. It should in no way reduce the responsibi­lities of the board. This cannot be adhered to in a prescribed form of agreement,” was a comment received by an entity in favour of the proposal, with modificati­ons.

The panel had recommende­d that an entity would qualify to access material informatio­n if its holds at least 25 per cent stake. Some in favour of the recommenda­tion, with tweaks, suggested the threshold be brought down to 20 per cent.

 ?? ILLUSTRATI­ON BY BINAY SINHA ??
ILLUSTRATI­ON BY BINAY SINHA

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