If you thought SEBI had given up on its plans to frame a separate regulation for the various corporate governance requirements specified in the listing agreement, then think again.

A regulation on the various requirements currently specified under the listing agreement is expected to have a better force of law than a mere agreement itself.

Draft regulation

The capital market regulator may by early May put out for public comments a discussion paper as well as draft regulation on the listing agreement norms for listed entities.

This draft regulation will cover the latest corporate governance norms (revised clause 49) mandated under the listed agreement to align them with the new company law.

The plan to frame regulation (for listing agreement) is very much on the radar of SEBI, Prashant Saran, SEBI Wholetime Member, told Business Line here when asked if SEBI intends to go in for a regulation on the listing agreement requirements.

Listing agreement

A listing agreement is purely an arrangement between the issuer of securities and a stock exchange.

There is no mechanism whereby stringent penalties can be imposed on companies for not adhering to any corporate governance requirement spelt out in the listing agreement.

Currently, if a company were found to be non-compliant with certain important clauses in the listing agreement, then it runs the risk of stock exchange suspending its securities from being traded.

Although this may be a right approach, it was perceived not being in the interests of the retail investors.

On the other hand, a regulation would help the regulator impose financial penalties on a non-compliant company and thereby improve compliance, without substantially affecting the interests of retail investors .

SEBI is now looking to expose for public comments a draft of the regulation itself.

This is because the recent Justice Srikrishna chaired Financial Sector Legislative Reforms Commission (FSLRC) report had recommended that regulators release for public comments a draft of every regulation before they were finalised by the regulator’s board.

Once the public comments are received, they will be considered by the SEBI board before finalising the regulation.

Although stock exchanges had been designated as the first level regulator, the jury is still out as regards their performance in initiating action against companies that don’t comply with the listing requirements.

Part of the difficulty could arise from conflict of interest situations often faced by stock exchanges.

Listing fees are a revenue stream for stock exchanges and any suspension of trading of securities will only put at risk their revenues.

But SEBI had in November 2013 directed stock exchanges to put in place appropriate framework (including manpower) to effectively monitor the adequacy and accuracy of the disclosures made by listed companies.

The capital market regulator had also given few indicative parameters to be included for non-compliance.

>srivats.kr@thehindu.co.in

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