Understanding SEBI’s Material Event Thresholds | Enhancing Disclosure Standards for Market Integrity

Deepti Jambigi Joshi and Vallabh M Joshi – [2023] 152 taxmann.com 238 (Article)

I. Background

Regulation 30(1) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements), Regulations, 2015 [‘LODR Regulations’] requires listed entities to disclose material information to stock exchanges. Regulation 30(4) states the criteria that listed entities should see to determine what would be considered material information/event. Earlier barring certain events/information which were deemed to be material, the determination of whether an information is material or not was left to the listed companies. There was no specified threshold provided for considering information or event as material. Listed Companies were guided by provisions of Clause (i) of sub-regulation 30 (4) of LODR Regulations for determining what was considered material information.

II. Rationale of Amendment

In November 2022, SEBI issued a Consultation Paper for bringing transparency, objectivity and uniformity while disclosing material events or information specified under Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”).

The Consultation Paper underlined the issue(s)observed by SEBI while disclosing the events specified in Para B of Part Aof Schedule III upon applying guidelines of materiality. It underlined the fact that many listed entities do not disclose events specified under Para B on the ground that they are not considered as material as per their Materiality Policy framed in terms of the criteria prescribed in regulation 30(4) of LODR Regulations.

Therefore, to bring uniformity in the Materiality Policy of Listed entities, SEBI proposed to introduce a quantitative criterion of minimum threshold for determining the materiality of information events for disclosure specified under Para B of Part A of Schedule III based on the value or the expected quantitative impact of the event.

The proposal was accepted andincorporated in LODR Regulations by way of SEBI (Listing Obligations and Disclosure Requirements) (Second Amendment) Regulations, 2023 (“the Amendment”). This Amendment shall be effective from July 14, 2023.

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