This article has been written by Gowthaman Asokan pursuing an Executive Certificate Course in Corporate Governance for Directors and CXOs from Skill Arbitrage.
This article has been edited and published by Shashwat Kaushik.
Table of Contents
Introduction
The question that needs to be answered is: what are the Listing Obligations and Disclosure Requirements (LODR), and what is it needed for? How does it help and who will benefit from it, and what would be the disadvantages of such a requirement?
The LODR is an extensive document and it would be quite tiresome to provide a summary. The salient features of the LODR have been brought out in this overview.
Security Contract (Regulation) Act (1956)
For a company to trade on the stock exchange, an agreement named the listing agreement is to be made between the company (wanting to be listed) and the stock exchange. The Listing Agreement was initially inserted into the Securities Contract Act (1956) under Section 21, which states that “where the securities are listed on the application of any person in any recognised stock exchange, such person shall comply with the conditions of the listing agreement with that stock exchange.”
The Act implies that the securities mentioned below shall follow and abide by the regulations applied to them, failing which penalties may be imposed on them or delisting from the stock exchange.
- Specified securities listed on the main board or SME Exchange or institutional trading platform.
- Non-convertible debt securities, non-convertible redeemable preference shares, perpetual debt instruments, perpetual non-cumulative preference shares.
- Indian depository receipts.
- Securitised debt instruments.
- Units issued by mutual funds.
- Any other securities as may be specified by the Board.
Listing obligations and disclosure requirements (LODR)
The LODR are a set of requirements introduced in 2015 by SEBI (Securities and Exchange Board of India, a statutory board by the Indian Government that regulates the Indian securities market by ensuring transparency and protecting investor’s interests) aimed at enhancing corporate governance practices and increasing transparency in the stock market.
SEBI has periodically updated the LODR to keep up with the existing market conditions and regulatory developments. The requirements are designed and modified to ensure that the investors have timely access to details on listed companies, hold companies accountable for their actions and financial disclosures and safeguard investor interest through disclosure norms and governance practices, thereby promoting investor confidence.
The LODR is fundamentally designed to:
- Ensure transparency and accountability in financial markets
- Protect investors and maintain market integrity
- Prevent fraud, mismanagement, and market manipulation to create a fair market
- Foster a healthy investment environment that supports investor confidence
Support overall economic development and growth through a reliable and stable financial system.
The LODR is divided into 12 chapters and 1 annexure, as shown below:
- Introduction
- Principles governing disclosures and obligations
- Provisions of Companies Act, 2013 governing debt securities
- Listing of non-convertible debentures and non-convertible redeemable preference shares or both.
- Common obligations.
- Intimations and disclosures.
- Compliances under different regulations
- Listing of specified securities and debt securities
- Listing of securitised debt instruments
- Compliance calendar
- Compliance for listed companies under Companies Act, 2013
- Penalties and contravention
Annexure: Website requirements-checklist
The chapter on introduction introduces the framework, its history and how it works. It also covers the salient features of the listing regulations, the uniform listing agreement, the date of applicability of the regulations, the applicability of the regulations, the meaning of the listed entity and the obligations of listed entities.
The following chapters describe the principles governing disclosures, provisions of the Companies Act, 2013 for governing debt securities, common obligations and disclosures of listed securities.
The regulations are divided into 2 parts,
- The substantive provisions incorporated by the main body of the regulations and
- The procedural requirements are in the form of schedules and regulations.
Substantive provisions incorporated by the main body of the regulations
Some of the substantive provisions included in the main body include the core requirements companies need to follow, including (but not limited to)
Corporate governance
This regulation indicates the composition of the board, including independent directors. It also includes the formation of committees such as the audit committee, remuneration and nomination committee.
Disclosure requirements
This section indicates the details that are to be disclosed by the company to the investors. These details may include financial reports, quarterly results, annual reports, shareholding structure, changes, and significant shareholders, as well as other disclosures that could affect the company’s financial position or operations.
Corporate actions
This section deals with requirements for disclosing and handling mergers, demergers and acquisitions.
Compliance calendar
Another component of the LODR is the compliance calendar, which provides dates and a timeline before which the respective submissions of the forms and schedules are to be done to SEBI.
Website requirements-checklist
A comprehensive checklist indicating the requirements and details that should be furnished on their website has been provided to the listed companies.
Recent changes in the LODR
The LODR undergoes changes based on market demand. The last significant change would be the amendment regarding addressing rumours in mainstream media.
Addressing rumours in mainstream media
The top 100 listed entities from February 01, 2024, onwards and the top 250 listed entities from August 01, 2024 onwards are required to either confirm, deny or clarify any reported event/information circulating in the “mainstream media” regarding impending specific material events/information within 24 hours. Previously, there was no regulatory obligation mandating listed entities to address such rumours. If the listed entity confirms such a rumour, it must provide details on the current stage of such an event/information.
Challenges
Some of the challenges in abiding by the LODR would be compliance costs, complexity, administrative burden, and potential for over-regulation. However, this is offset by opportunities such as building market reputation, leveraging technology, aligning with global standards, and integrating sustainability reporting. Regarding threats such as regulatory changes, penalties, competitive disadvantages, and cybersecurity risks.
From the above contextualisation, we can conclude that the policing of the companies by the SEBI via LODR and its tools, such as schedules, regulations and statutory requirements, enable investors to have confidence in the systems & processes that encourage them to invest in the securities of the stock exchange.
Conclusion
The recent updates indicate that SEBI is constantly on the lookout for ways to improve stakeholder confidence by updating the LODR in line with market situations.
In a VUCA (volatility, uncertainty, complexity and ambiguity) world, it is imperative that such regulations be made, modified and audited. In a world where uncertainty is at its peak, we should brace ourselves and feel obliged that SEBI is imposing strict and quick amendments to cater to the needs of the investors. Protecting the rights and addressing the grievances of the investors aim at getting more investors from both inside and outside the country. The LODR is the prime reason for investors to have faith in the system.
