SEBI amends the Listing Agreement

SEBI has made some significant changes to the equities listing agreement (the “Listing Agreement”) by a circular (available here) on 16th December, 2010. The changes introduced are as under:

1. Changes to clause 35
Clause 35 of the Listing Agreement mandates companies to file the details of their shareholding pattern with stock exchanges on a quarterly basis within 21 days of end of each quarter. SEBI has now added two more reporting requirements in clause 35 which are (i) companies should disclose their shareholding one day prior to the listing of its securities and the stock exchanges are required to disseminate these details before the first trade (this ensures wider public dissemination of shareholding pattern), and (ii) companies should report within 10 days any capital restructuring resulting in a change exceeding +/-2% of the total paid-up share capital.

Another change introduced in clause 35 is with respect to the details of ‘shares held by custodians and against which DRs(depositary receipts) have been issued', which are presently required to be disclosed in Table (I) (a) of Clause 35, should from now on be further segregated as those pertaining to the ‘promoter/promoter group’ and to the ‘public’.

This will ensure a holistic and true picture of the promoter/promoter group holding.

2. Changes to clause 5A
Clause 5A of the Listing Agreement contains the procedure to be followed by the companies with respect to the unclaimed shares pursuant to public or any other issue. Before the amendment, the clause only dealt with the shares issued in electronic and provided nothing for shares issued in the past in physical mode. Vide this amendment, SEBI has inserted specific provision for procedure to be followed in respect of unclaimed shares issued in physical form.

This will end the difficulties faced by the companies which have in the past issued shares in physical form.

3. Changes to clause 20
Clause 20 of the Listing Agreement mandates the companies to intimate the exchange of the outcome of the board meeting to consider payment of dividends or buyback. The existing clause does not require the companies to intimate the date of payment/dispatch of dividends to the exchange. Vide this amendment, SEBI has made it mandatory for the companies to also inform the exchange the date on which dividend would be paid.

This will enhance transparency and enable the investors to manage their cash/securities flows efficiently

4. Changes to clause 22
Clause 22 of the Listing Agreement mandates the companies to intimate the exchange within 15 minutes of the closure of the Board meeting the particulars of the decisions taken therein pertaining to increase of capital by issue of bonus shares, re-issue of forfeited shares/securities or any other alterations of capital. Vide this amendment, SEBI has made it mandatory for the companies to also inform the exchange the date on which the bonus shares would be credited/ dispatched.

5. Changes to clause 40A
Clause 40A of the Listing Agreement contains the condition for minimum public float to be adhered to by a listed company. The Government in June 2010 through the Securities Contracts (Regulation) (Amendment) Rules, 2010 (a copy of which is available here), had mandated listed companies to achieve at a 25 percent public shareholding in the next three years. This amendment had also prescribed annual floors of 10%/ 5% by which the listed companies should reach the 25% public shareholding. However, there was a further amendment in August 2010 vide Securities Contracts (Regulation) (Second Amendment) Rules, 2010 (notification no. GSR662(E) dated 9th August 2010 available at MANU/EAF/0142/2010), whereby the 25% requirement was reduced to 10% for public sector enterprises and flexibility was provided to the listed companies to attain the 25%(10% for public sector enterprises) within three years without any annual floor.

Clause 40A has now been amended to bring it in alignment with this second amendment to the Securities Contract (Regulation) Rules, 2010 (the “Rules”). The amended clause 40A now specifically provides that a listed company has to comply with the requirements of the Rules and can reach the required level of public shareholding by issuance of shares to public through prospectus/offer of promoters’ shares to public through prospectus/sale of promoters’ shares through secondary market.

6. Insertion of new clause 53 and 54
The following new clauses have been inserted in the Listing Agreement by this amendment:
• “53. The issuer company agrees to notify the stock exchange and also disseminate through its own website, immediately upon entering into agreements with media companies and/or their associates, the following information:-
a. Disclosures regarding the shareholding (if any) of such media companies/associates in the issuer company.
b. Any other disclosures related to such agreements, viz., details of nominee of the media companies on the Board of the issuer company, any management control or potential conflict of interest arising out of such agreements, etc.
c. Disclosures regarding any other back to back treaties/contracts/agreements/MoUs or similar instruments entered into by the issuer company with media companies and/or their associates for the purpose of advertising, publicity, etc. “

• “54. The issuer company agrees to maintain a functional website containing basic information about the company e.g. details of its business, financial information, shareholding pattern, compliance with corporate governance, contact information of the designated officials of the company who are responsible for assisting and handling investor grievances, details of agreements entered into with the media companies and/or their associates, etc. The issuer company also agrees to ensure that the contents of the said website are updated at any given point of time.”

These added clauses seek to ensure public dissemination of details of agreements entered into by corporates with media companies. This change is basically a bye-product of an earlier SEBI press release available here, which has been discussed in a previous post.

The amendments to clauses 5A, 35, 40A and insertion of clause 53 comes with immediate effect, while the amendments to clauses 20, 21 and 22 would be applicable for all board/shareholders meetings held on or after 1st January, 2011. The insertion of clause 54 is to take effect from 1st April, 2011.