SEBI Embarks On A New Approach With Rules On Market Rumors

If there is an alignment of objectives for both the industry and the Securities and Exchange Board of India, then whatever road is taken to reach the objective doesn't matter as the intent is not to make one choose the toughest road, said Chairperson Madhabi Puri Buch.

Buch said this in the context of a pilot project where the regulator is telling India Inc. to set its own implementation standards for various regulations.

The new approach will be first applied to the regulator's rules on market rumors. Starting Oct. 1, the rules will require the top 100 listed companies by market capitalisation to respond to market rumors reported in the mainstream media.

Buch highlighted that the industry has communicated implementation challenges in complying with this framework. And so, the regulator outlined what steps can show compliance.

For instance, a company can demonstrate compliance with the regulation for verifying market rumors by using an existing media tracking agency's coverage as an acceptable standard.

"SEBI will never say that a blogger in some corner of the world said something and that is not showing up; that is not the intent of the regulator," Buch said.

To ascertain what would construe a 'specific rumour', the industry can set a standard for that, she said. The regulations require that the company then put out an adequate response to address the rumors.

A company has finite 10-20 issues, and it is not hard to figure out a standard for responding to these rumors, according to her. For example, for rumors on a mergers and acquisitions transaction, companies can figure out what would be an adequate response and these are standards that the industry can craft, she said.

The draft standards can then be brought to the regulator for further consultation, Buch said.

This decision is a consequence of two approaches that SEBI anticipates corporate India will take. First, some entities will tend to over-engineer the compliances which is not the intent of the regulator. And two, to check whether the evolving standards are broadly in line with the regulations.

The approach will act as an "additional element in the regulatory architecture which is to facilitate a greater standardisation in execution of regulations", she said.

Although the project will be a pilot for the market rumor regulations, SEBI is open for the industry to come back with standards for any prospective or existing regulation, Buch said. She cautioned that if the standard proposed by the industry is at variance with the intent of the regulatory framework, that will not be acceptable.

It was clarified that this setting up of standards is not a substitute to the consultation papers or advisory committees, but complementary to the purpose of implementation of what is already approved.