Companies to verify rumors about them

The Securities and Exchange Board of India (SEBI) publicized a consultation paper on December 28, challenging the existing criteria on rumor verification in the stock markets. The proposed changes suggest a shift from verifying material events to focusing on material price movements, as outlined in Regulation 30 of the listing regulations.

According to the consultation paper, SEBI emphasizes that companies should only engage in the verification of rumors when there is a substantial shift in share prices. Furthermore, it suggests that key company officials and directors play a critical role in verifying rumors related to their respective entities.

Presently, under Regulation 30 of the Listing Obligations and Disclosure Requirements (LODR) Regulations, companies are required to verify material events or information after a rumor has been circulated in mainstream media. SEBI mandates that this verification process be completed within 24 hours of the rumor being reported in mainstream media.

Starting from February 1, 2024, the top 100 listed companies are expected to stick to the new market rumor verification norms, while the top 250 firms will follow suit from August 1, 2024.

SEBI's consultation paper underlines the need for rumor verification to prevent false market sentiment and its impact on listed entity securities. The paper acknowledges the prevalence of numerous rumors in the market, some of which may or may not have a material impact on listed entity securities. Consequently, the proposal suggests that only rumors related to material price movements should necessitate verification by the listed entity.

The Indian Standards Forum (ISF) has put forth a suggestion to redefine 'materiality' in terms of price movement in the scrips of the listed entity. The explanation behind this recommendation is to ensure the prompt verification of rumors that result in sudden movements in the price of the scrips.

SEBI supports this perspective, stating in the consultation paper, "Defining ‘materiality’ in terms of price movement instead of a material event in terms of regulation 30 of LODR Regulations may be more relevant for the rumor verification requirement."

To gather insights and feedback, SEBI has invited comments on the consultation paper regarding market rumor verification norms until January 18. 

Until then...

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