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Formation of Industry Standards Forum by SEBI – a pragmatic era in regulation implementation

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 Recently, SEBI has introduced a very pragmatic method of drafting standards for implementation of a regulation. In a novel, unique and constructive move it has invited three of the main industry associations to together form an Industry Standards Forum which will assist in designing the implementation standards for some of the proposed regulations. The Forum will work in consultation with SEBI, and the two Stock Exchanges will coordinate these initiatives. This pilot initiative of SEBI is clearly a paradigm change in regulation implementation. It will allow experts in various industry bodies to contribute to the design of implementation standards for various regulations. The involvement of industry bodies is indeed path breaking.

 

The first regulation that has been worked upon by the Industry Standards Forum on a pilot basis is pertaining to rumour verification which was to come into effect from October 1, 2023. This regulation required some of the listed companies to confirm/ deny or provide clarification to market rumours, as per the Regulation 30(11) of the SEBI, LODR Regulations. After the receipt of initial recommendations from the Industry Standards Forum, SEBI yesterday decided to give more time and defer the implementation of the provision for rumour verification. To comply with the requirement of rumour verification, corporates will need to put in place the requisite infrastructure to identify a rumour, to understand its nature and to respond appropriately.For example, information collation from the entire mainstream media to even identify a rumour could be a large exercise. So, an appropriate mechanism would be required to track a rumour and to make sure that all the relevant information is available to respond to it quickly.Secondly, corporates should be able to quickly categorize rumours as only a specific rumour would require a response. Therefore, it's important to understand the types of rumours which could be termed as specific in nature. Obviously, there could be a few interpretational issues in these situations.

 

To my mind, responding to a rumour is a nuanced matter which requires deep planning. There could be various situations. For example, a rumour related to an M&A or a financing deal would require a very different kind of approach such that the response does not impact the deal or its pricing. Also, such deals often span over a period and responses to rumours at different stages of the deal would have to be thought through differently. Further, there could be rumours like a whistleblower complaint. Dealing with such a situation may require a completely different approach. The deferment of the implementation date for regulations on rumour verification by SEBI after the receipt of initial recommendations from the Industry Standards Forum, speaks of the value add being contributed by this Forum. Of course, the process will only evolve over time. Am sure, an initiative like this will go a long way in understanding views of all sides and bringing the implementation to the forefront. It will be a significant move from only “what to implement” to “what and how to implement”.

 

 

- Economic Times 3th october, 2023

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