Are you Proposing to List Shares on Recognized Stock Exchange? - MMJC

Introduction:

When a company goes public through an Initial Public Offering (IPO), it marks a significant and complex milestone, requiring immense effort from the entire team involved. However, this is just the beginning. The compliance journey doesn’t stop with the listing; it continues with rigorous ongoing obligations. This structured approach ensures that companies maintain transparency and accountability in their operations and reporting. In this write up we will see the details of the Initial compliances for the newly listed entities who have recently completed their IPO.

A. Compliance on the day of listing (urgent and important):

Companies once listed are subject to compliance with various SEBI regulations viz. Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015 [‘SEBI LODR’], Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations 2015 [‘SEBI PIT’] etc, and circulars issued by Securities and Exchange Board of India and stock exchanges. The compliance obligations of a listed company are categorized into quarterly, half-yearly, and yearly requirements, along with obligations triggered by specific events. This structured approach ensures that companies maintain transparency and accountability in their operations and reporting.

Initial important compliances to be done by the listed entities within a month of their listing are as follows:

• Publishing financial results: As per regulation 33 (3)(j) of SEBI LODR a newly listed entity will have to submit financial results within a period of 21 days from date of listing or timelines as provided under SEBI LODR whichever is latter. E.g If a company is listed on stock exchange on July 1 then it will have to submit financial results August 14. So once a company gets listed it will have to plan for the audit committee and board meeting for approval of financial results. Once the board and audit committee meetings are planned it will have to give intimation to stock exchange in pdf and XBRL form about the dates of board meeting.

• Trading window closure: The trading window closure refers to a period during which designated persons, such as company insiders and employees, are prohibited from trading in the company’s securities. As per schedule B clause 4 of SEBI PIT compliance officer shall close the trading window when he determines that designated persons or class of designated persons are having access to unpublished price sensitive information. Further as per BSE and NSE circular dt: April 2, 2019 companies are expected to close trading window during the period of finalisation and declaration of financial results. As newly listed companies are required to disclose financial results within the time period stated above they will first have to close the trading window for designated persons.

From the date of the company’s listing, the company must notify the stock exchanges where its shares are listed, about the commencement of the Trading Window Closure period.

• Challenges in giving trading window closure in XBRL form: 

Trading window disclosure has to be given in pdf and XBRL both. In XBRL form, disclosure has to be given for each specific agenda that requires disclosure under Regulation 29 of SEBI LODR.

When disclosure is given in XBRL form it is specifically sought as to when was the trading window closed for that particular agenda item which is proposed to be discussed at the board meeting. E.g. If a company got listed on July 2 and gave intimation to stock exchange on August 1 that board will meet on August 14 for discussing financial results, dividend etc. then XBRL utility will ask when was trading window closed and when will trading window open for financial results. E.g. if dividend is being considered by board of director, then it needs to be mentioned in XBRL utility when was trading window closed for the purpose of dividend. Companies need to have this data ready.

Suppose there is a change in the date of board meeting as already informed to stock exchange then XBRL utility will allow you to change the date of board meeting.

Intimation of trading window closure to all designated persons: Additionally, the company must inform all designated persons about the closure of the trading window. It is necessary to maintain proper documentation of this compliance.

Tracking of trades of designated persons: During trading window closure period company will have to track trading by designated persons.

B. Freezing of PAN of designated persons at depository level – Important but not urgent compliance

It is an automated trading restriction system. It would automatically impose restrictions on trading activities based on predefined criteria.

In accordance with SEBI master circular dt: September 23, 2024, before submission of second quarter financial results after getting listed, companies must mandatorily freeze the PAN at the security level of designated persons with the designated depository. For example, if a company is listed on August 23, 2023 (i.e. September 2023 quarter), this mandatory freezing would be applicable starting from the December 2023 quarter.

Freezing of PAN at security level means that once the trading window is closed and an intimation is given to designated depository regarding same then designated persons cannot trade in the security(ies) of listed company unless the PAN is defreezed post of opening of trading window.

It is necessary that compliance officer keeps the details of change in designated persons in the listed company always updated. SEBI master circular on surveillance states that listed companies shall update change in details of designated persons on the designated depository portal on the same day. As per reg 9(4)  read with clause 15 of schedule B listed entities shall have framework as part of code of conduct as to when persons would be considered as designated persons.

Conclusion

Companies once listed are subject to strict regulatory framework. Being aware of all the compliances applicable from first day of listing helps companies to be prepared for complying with same. Being on the right side of law from the very first day helps is necessary to promote compliance culture.

 (1)The listed entity shall, subsequent to the listing, submit its financial results for the quarter or the financial year immediately succeeding the period for which the financial statements have been disclosed in the offer document for the initial public offer, in accordance with the timeline specified in clause (a) or clause (d) of this sub-regulation, as the case may be, or within 21 days from the date of its listing, whichever is later.

 (2) Designated persons may execute trades subject to compliance with these regulations. Towards this end, a notional trading window shall be used as an instrument of monitoring trading by the designated persons. The trading window shall be closed when the compliance officer determines that a designated person or class of designated persons can reasonably be expected to have possession of unpublished price sensitive information. Designated persons and their immediate relatives shall not trade in securities when the trading window is closed.

 3.https://www.bseindia.com/corporates/Displaydata.aspx?Id=7A303AE6-B2A2-41B4-AEE8-079FAB9A7FC2&Page=cir and https://nsearchives.nseindia.com/content/equities/NSE_Circular_02042019.pdf 

 4.The listed entity shall give prior intimation 195[of at least two working days in advance, excluding the date of the intimation and date of the meeting,] to stock exchange about the meeting of the board of directors in which any of the following proposals is due to be considered:

 5 https://www.sebi.gov.in/legal/master-circulars/sep-2024/master-circular-on-surveillance-of-securities-market_86929.html – annexure 4

 6 https://www.sebi.gov.in/legal/master-circulars/sep-2024/master-circular-on-surveillance-of-securities-market_86929.html – Annexure 3 – point 4 – page 20

7  Listed entities shall have a process for how and when people are brought ‘inside’ on  sensitive transactions.  Individuals  should  be  made  aware  of  the  duties  and  responsibilities attached  to  the  receipt  of  Inside  Information,  and  the  liability  that  attaches  to  misuse  or unwarranted use of such information