SEBI LODR: New Norms to Benefit Shareholders

Markets regulator the Securities and Exchange Board of India (SEBI) has recently proposed a few changes to the governance norms for listed entities. The markets regulator has sought comments from stakeholders and the public by March 7. These new norms proposed by SEBI are expected to give additional power to the shareholders.

The idea behind releasing this consultation paper on the listing obligation and disclosure requirement (LODR) rule is to protect investors’ interests and market integrity.

It is mandatory for all companies to come up with a LODR when they plan to raise funds through initial public offerings (IPOs).

If implemented, these norms would give more rights to shareholders, while increasing corporate disclosures on agreements binding them. 

The recent consultation paper on LODR broadly highlighted four things: The agreement which binds the companies, the special rights to certain shareholders, disclosure of material events that could impact the stock price or the company, and board composition.

There are various issues that are likely to be addressed through this consultation paper. For example, a few new-age company promoters enjoyed special rights. After listing, certain new-age companies faced a sharp fall in prices. 

Also, in some companies, directors continue to hold positions with no limit on tenure even if they lose the majority of the control.

Then, there are companies which are undertaking decision tactics that are not being disclosed to exchanges. The market regulator wishes to address all these issues.

The proposed amendments aim to introduce transparency while extending corporate governance and corporate due process requirements to restrain transactions designed to circumvent existing disclosure and approval requirements.