SEBI Proposes Treating All Material Information As Price Sensitive

The market regulator, on Thursday, proposed to review the definition of ‘Unpublished Price Sensitive Information’ in its effort to bring uniformity and regulatory certainty to existing regulations.

According to its proposals, all events that are considered material under Regulation 30 of Listing Obligations and Disclosure Requirements would now come under the purview of price-sensitive information for the purpose of preventing insider trading practices.

According to the Listing Regulations, material information includes:

• Any information that can materially change any publicly available information.

• Any information that can result in a significant market reaction.

• Any information that’s considered material by the board of directors.

This is in addition to the list of events that are deemed material by the regulator, such as mergers and acquisitions, alteration of securities, revision of ratings, buyback of securities, etc.

In its last board meeting, SEBI also approved the introduction of a quantitative threshold for materiality.

This comes amid certain observations made by the market regulator. According to it, on multiple occasions, information that should have been classified as price sensitive has escaped scrutiny because companies failed to classify it as such.

It was observed that the companies categorise only items that are explicitly provided under the regulations. This included information such as financial results, dividends, changes in capital structure, mergers and amalgamations as well as any changes in key managerial personnel.

This meant that every other piece of information, such as sales-related information, expansion plans, and potential investments that could have an impact on the price, escaped scrutiny.

The regulator and stock exchanges conducted a study in January 2021 and September 2022, which served as the basis for the observations. Out of the 1,099 press releases made by the listed companies during the period, in 227 instances, the price movement was above 2%. However, only 18 of them were classified as price sensitive by the companies.

This meant that in several cases involving insider trading by employees, most employees were able to defend themselves as the company itself failed to categorise the information as price sensitive.

Additionally, this affected the ability of the SEBI surveillance system to generate alerts of suspected insider trading cases, even when a substantial number of entities made notional profits, sometimes exceeding even Rs 25 crore, subsequent to the release of the information.

Comments on the proposed changes can be submitted until June 2.