Press Releases to Stock Exchange– Whether material information? Whether UPSI? - MMJC

Concerns on disclosures by listed entities through Press Release:

Securities and Exchange Board of India (‘SEBI’) on May 18, 2023, through a consultation paper[1] had proposed changing the definition of Unpublished Price Sensitive Information [‘UPSI’] as provided under Regulation 2(1)(n) of SEBI (Prohibition of Insider Trading) Regulations, 2015 [‘SEBI PIT’]. This proposal was based on certain analysis done by SEBI. SEBI observed that certain listed entities did not have an analytical approach in identifying and disclosing material information to the stock exchange. SEBI further observed that many listed entities, on many occasions, had missed to categorise material information as UPSI. This analysis was backed by an analysis of 1,100 press releases that were issued by the top 100 listed companies between January 2021 and September 2022. In this analysis, it was seen that, out of 1,099 press releases, in 227 instances, there was price movement in the scrip which was more than 2%. However, of these 227 instances, merely 8% (18) press releases were categorized as UPSI by the listed companies.

SEBI highlighted that this meant that if total press releases are considered, only 1.64 percent of them were categorized as UPSI by the listed companies, which in turn, had hampered its (SEBI’s) efforts towards curbing insider trading by the non-categorization of material information as UPSI by the listed companies. If we see the meaning of the term ‘Press Release’ as per Collins dictionary, it means that “a press release is a written statement about a matter of public interest which is given to the press by an organization concerned with the matter.” From the definition, it can be understood that press releases are mainly meant for media. Press Releases to media would be brief in nature i.e., in the form of news to be given to media for the public at large. Such press releases, as it is, cannot be given to the stock exchange. Information to be given to stock exchanges must be in compliance with guidelines given by SEBI and Stock Exchanges.

So, there is a need for listed companies to check if the press release is in itself or contains any material information or not before releasing the same.

Precedents – Press Releases not being considered as Material Information and UPSI:

In recent past, SEBI has adjudicated a few matters relating to insider trading wherein press releases were issued by listed entities for disclosure of material information and UPSI. SEBI has, in these adjudication orders on insider trading, made remarks regarding practices followed by listed companies of disclosure of material information through press releases. In one of the recent cases[2] SEBI Adjudication Officer / contended as follows, “I have perused the press releases enclosed by Noticees and observe that the events mentioned in the said press releases are varied and among others, relate to ZEEL’s merger with Sony Pictures, corporate information, appointments in ZEEL, etc. A press release is usually carried out to publicize an event considered significant by the company. Press releases may also relate to company’s information pertaining to awards received by it, its activities pertaining to Corporate Social Responsibility, etc. which may not necessarily constitute price-sensitive information. In the list of press releases provided by the Noticees, it is also observed that certain price-sensitive information had been communicated through a press release as well. For instance, ZEEL had, for instance, issued a press release announcing their agreements for a merger with Sony Pictures Networks India which was price sensitive information. Therefore, the information provided through press releases needs to be assessed to determine whether the information is price sensitive or not…”

Further in another order, the Securities Appellate Tribunal had highlighted concerns on disclosure made in the form of a press release by Edelweiss Financial Services Ltd regarding 100% acquisition by its step-down wholly owned subsidiary. It was argued by Edelweiss that this 100% acquisition was neither material information nor price-sensitive information. In this case[3] Securities Appellate Tribunal held as follows, “Moreover, it is a fact that the company did not make the disclosure under Regulation 30 of LODR Regulations giving all details of the financial magnitudes and business volumes and stating that the acquisition, though 100% of a company, is only addition to the fintech having no impact on the business volumes etc…..The above disclosure only talks of the 100% acquisition of a company by a subsidiary of Edelweiss which would help grow Edelweiss fixed income advisory business. No caveats are given; rather certainly the disclosure is clearly as a positive addition to help the business growth of Edelweiss…. Therefore, in our considered view any event like a 100% acquisition of a company, irrespective of its value or size is material and liable to bring in UPSI and consequently liable for regulatory compliance under LODR and PIT Regulations” Stock markets function on disclosure-based regime. Disclosure of correct and adequate information is responsibility of listed companies.

Circulars from Stock Exchanges:

Guidance in the form of Circulars has been issued by Stock Exchange (Bombay Stock Exchange [‘BSE’] and National Stock Exchange [‘NSE’])[4] for the language to be used while submitting information. BSE and NSE have provided an indicative list of things that need to be kept in mind by listed entities while making disclosures to stock exchanges. Guidelines provided by the stock exchange range from providing concise, truthful, fair, and evidence-based data. Also, stock exchanges have given guidance on content pertaining to specific disclosure viz. receipt of an award. It has also been advised to avoid using technical and complex language.

Conclusion:

Looking at the above guidance being given through Orders by SEBI and SAT and through the guidance issued by stock exchanges, it is very important that how are listed entities handling the issuance of press releases and disclosure of related information to stock exchanges.

Listed entities need to be guided by following points while making submission of information pertaining press releases to stock exchanges:

1. Whether the information is material information warranting disclosure to stock exchange under Regulation 30 read with Schedule III of LODR Regulations?
2. If yes, then the disclosure to be given to stock exchange shall be accompanied by minimum disclosures that are required to be given as per SEBI Circular September 9, 2015, as may be applicable.
3. Disclosures given to stock exchanges shall be in compliance with Guidance provided by BSE and NSE for communication to stock exchanges.
4. If the listed entity is of the view that the information in Press Release is not in the nature of material information under Regulation 30 read with Schedule III of LODR Regulations, then the listed entity needs to ensure that it has adequate justification as to why that information is not material information? and also ensure documentation of such justification in its relevant records.

Further in such cases, the press release should not be submitted to stock exchanges under the tab of ‘Regulation 30’ while filing with stock exchanges in XBRL mode.

• Similarly, the listed entity should be clear on whether the information is in the nature of UPSI? If yes, then all relevant activities under SEBI PIT, like closure of trading window, entries in structured digital database etc., right at the stage of germination of such information.
• If the listed entity is of the view that the information in Press Release is not in the nature of UPSI, although it may or may not be material information under Regulation 30 read with Schedule III of LODR Regulations, then the listed entity need to ensure that it has adequate justification as to why that information is not in the nature of UPSI?, and also ensure documentation of such justification in its relevant records.

[1]https://www.sebi.gov.in/reports-and-statistics/reports/may-2023/consultation-paper-on-proposed-review-of-the-definition-of-unpublished-price-sensitive-information-upsi-under-sebi-prohibition-of-insider-trading-regulations-2015-to-bring-greater-clarity-and-uni-_71337.html

[2] In the matter of Zee Entertainment Enterprises Limited (‘ZEEL’) dated. March 31, 2023

https://www.sebi.gov.in/enforcement/orders/mar-2023/final-order-in-the-matter-of-zee-entertainment-enterprises-limited_69683.html

[3] Order of SAT in the matter of Edelweiss Financial Services Limited dt: March 24, 2021.

[4] BSE Circular https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20210611-28 NSE Circular – https://static.nseindia.com//s3fs-public/inline-files/NSE_guidance_note_11062021.pdf

Article is wriiten by

CS Ruchira Pawase – Research Associate ruchirapawase@mmjc.in

CS Vallabh M Joshi, Senior Manager, vallabhjoshi@mmjc.in

CS Deepti Jambigi Joshi, Partner, deeptijambigi@mmjc.in

Also, the article is published in Taxmann

https://www.taxmann.com/research/company-and-sebi/top-story/105010000000023081/disclosures-by-listed-entities-through-press-release-whether-material-information-whether-upsi-experts-opinion