Sebi looking to HK disclosure rules

Author: Ashley Lee | Published: 29 Nov 2012
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The Securities and Exchange Board of India (Sebi) is increasingly looking towards regional and international regulatory activity in mandating higher disclosure requirements, according to counsel at IFLR’s India Capital Markets Forum.

This year Sebi has increased its disclosure standards in several areas. One example is its requirement for listed companies to file a comprehensive annual disclosure statement along the lines of the US SEC’s 20F filing.

Panelists agreed that Sebi is encouraging them to think more carefully about disclosure.

O’Melveny & Myers’ David Makarechian said, “Sebi has recently emphasised the need for counsel to move beyond checklist disclosure towards a much more involved standard.”

Counsel welcomed the move. “High disclosure standards are very important: they result in good issues, which eventually lead to a strong market,” said Ajay Vaidya of Kotak Mahindra Capital.

According to Pooja Sinha, counsel at O’Melveny & Myers, Sebi is increasingly asking what other markets are doing to deal with issues, so it’s important to be aware of what’s happening elsewhere.

She named Hong Kong as a key influencer: “Hong Kong has a similar market with high retail participation and many IPOs [initial public offerings], so Sebi may look towards its regulator’s activities,” she said.

Vaidya agreed, commenting that more than the US and UK, it seems that Sebi is looking to Hong Kong’s Securities and Futures Commission (SFC) as well as the Monetary Authority of Singapore.

Sinha noted Hong Kong’s Hontex case, which sparked the upcoming sponsor regulations. In the case, the SFC required the company to return its IPO proceedings to investors by requiring a share repurchase after evidence of fraud.

“It’s a sign of regulatory power and an indicator of what’s to come,” Sinha said.

Although counsel didn’t predict sponsor regulations in India, they have observed Sebi becoming more active in investigating banks. Vaidya said that now Sebi will go to a merchant banker’s website and review disclosures of banks’ issue management track record.

However Sinha added that India’s disclosure system seems to be working.

“At the end of the day, we haven’t seen large-scale diligence fraud or failure in India,” she said. “Regardless, it’s a good time to overhaul the framework.”

See also

‘Why Sebi’s primary markets reforms disappoint’

‘India’s balance of PE regulation and investor friendliness’

‘How India flash crash could affect algos’