With the Securities and Exchange Board of India (Sebi), in conjunction with stock exchanges and industry bodies, bringing in detailed guidelines for top 250 listed companies to confirm, deny or clarify rumours within specific timelines, experts believe that there are still some issues that should be ironed out, especially in case of mergers and acquisitions.

Last week, the detailed guidelines for listed companies were issued. It also had an interesting mechanism called ‘unaffected price” for mitigating any ‘material impact’ on stock prices due to market rumours.

To provide further clarity, three industry bodies – Federation of Indian Chambers of Commerce and Industry (FICCI), Associated Chambers of Commerce & Industry of India (ASSOCHAM), and the Confederation of Indian Industry (CII), along with stock exchanges, have given clarification on various areas such as ‘material impact’ and industry standards for M&A deals and other such transactions.

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“Even if the market rumour is specific and impending, a confirmation/ denial/clarification of the market rumour will be required only if the market rumour results in a ‘material price movement’, as per the framework issued by the stock exchanges,” the industry note said.

However, the burden of monitoring these news outlets and shares prices falls on the listed companies, which would add to company costs.

More interesting would be merger and acquisition deals. Detailed disclosure standards have been provided depending on the stage of the M&A transaction and the extent of the details specified in the rumour. This also implies that if the rumour is out before the deal reaches the stages listed by industry bodies, there may not be a need to confirm the transaction by companies.

That is, if a rumour was reported at the stage of engagement of legal or financial advisors for due diligence and signing of non disclosure agreement (NDA), the company can issue a general disclosure stating that ‘the company evaluates various strategic opportunities in the ordinary course, for growth and expansion of its business,’ the note said.

However, any NDA signing is a very early stage in any deal, and lots of deals may never go to advanced discussions even if it is signed, experts said.

“While this move will help improve parity of information, there is a risk of premature disclosures,” Sanjam Arora, partner at Trilegal said. “The devil lies in the details of how this will be implemented,” she said.

She added that there could be a practical problem of frequent disclosures by companies about deals that are in very early stages and may not materialize. This could be misleading for public shareholders. It is important for investors to have credible and concrete information and not a flurry of potential, unfinalised transactions

Further, the time period to avail the “unaffected price” is given as 180 days if there is a competitive bidding process for a potential M&A deal and in other cases, the period will be 60 days.

“Transactions such as the takeover of a listed company take a lot of time…if the rumour comes out early, the entity may not be able to complete it within 60 days,” Shoubhik Dasgupta, partner at Pioneer Legal said. “So the entity gets no benefit whatsoever in such a case, and now that the rumour is confirmed, the buyer is looking at a very high average price,” Dasgupta said.

Even the time period of 180 days is not enough for competitive bidding processes as these involve big M&A deals, experts said.

However, it should be easy to avail the benefit of ‘unaffected price’ by confirming such a news report when the transaction is at the stage of signing of an exclusive binding term-sheet. A confirmation is required along the lines of ‘This is to confirm that the company has executed a binding term-sheet with [name of the counterparty] in respect of a potential [publicly available details of the deal], the note said.

With such detailed guidelines, another worry that has emerged is companies facing charges for non compliance of the same. “The new framework introduced by SEBI including the relevant industry standards are fairly detailed and extremely prescriptive…one would hope that the regulator will not initiate strict action for technical non-compliances at least in the initial stages, Vaibhav Kakkar, senior partner at Saraf & Partners said.

The regulators will also need to give some breathing space for companies initially to get used to this regime, as the compliance burden will substantially increase for the relevant listed companies.