RINGSIDE VIEW. Uploading corporate announcements: not for speed alone, please!

Are you a trader who takes positions in stocks or derivatives based purely on the announcements disclosed by companies to the exchanges? If you are, don’t expect to hold the exchanges accountable if the information provided by the company under its material event disclosure is later proved wrong. For exchanges, the top priority is to provide the information quickly as against checking the veracity of the same.

In a recent disclaimer the BSE said: “The accuracy/adequacy/veracity of any information received from the companies by way of corporate announcements is not pre-verified by the exchange before dissemination. The same may be verified by the exchange only post dissemination on the exchange website in accordance with the extant rules/guidelines provided by SEBI from time to time.” According to the India’s oldest exchange, “The user of the information assumes the entire risk as to the suitability, use, results of use, accuracy, completeness, correctness of the information and shall waive any claim of detrimental reliance upon the information.”

The NSE also had a similar disclaimer to make. “The information displayed herein is uploaded by the concerned company. The said uploaded information is displayed without any verification of adequacy, accuracy and veracity by the exchange in discharge of its role of dissemination of uploaded information on this website immediately on its receipt.

“The company shall be solely responsible and liable for any omission, commission, errors and misrepresentations in the contents of the information. The exchange disclaims any liability arising out of the contents of the information uploaded by the company and in no event, the exchange will be held liable for any damages, claims arising out of such information.”

The BSE further says: “The user/company/any other person will, at its own cost and expense, indemnify, defend or at its option settle, and hold BSE free and harmless from and against any and all losses, liabilities, claims, actions, costs and expenses..., arising out of any or all information disseminated on the website of the exchange.”

While it is acceptable that the speed of disseminating the information is critical in the stock markets, where information asymmetry can lead to unfair gains for some investors, the question is what action exchanges will take if the information disseminated proves false at a later date. If no action is taken, will this not prompt companies with doubtful governance to bid up their stock prices with patently wrong news.

This suggests that it is not all that ethical on the part of the exchanges to wash their hands off the issue, in cases where companies deliberately feed wrong information to the exchanges. Instead, the exchanges could disseminate the information quickly, and punish erring companies with fines or suspension if they misinform the exchanges.

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