SEBI Disclosure Circular, a Blow Against the Exclusive Information Club

Source: SEBI

EXECUTIVE SUMMARY. In a major development, the Securities and the Exchange Board of India (SEBI) has finally instructed listed entities to disclose the audio/video recording of the analyst/institutional investors’ meet and presentations made at such meetings before the next trading day or within 24 hours, whichever is earlier. Written transcripts of such meeting will have to be uploaded on the listed entities’ websites within 5 working days.

This analyst had repeatedly argued (here and here) for such an important disclosure and in a note dated April 11, 2020 had said,

“…SEBI must ensure that listed companies and sell-side firms which they regulate are mandated to upload the audio recordings/unedited transcript of such calls immediately after the call is completed, as it is unfair to shareholders, especially retail shareholders, to be denied such information. Such transparency to all shareholders would assist in price discovery for the entire market, and not just for the favoured few institutional investors/sell-side [brokers] analysts who typically get invited to such conference calls.”

The commendable but belated instruction by SEBI will disrupt the investor relations division of listed companies and put a thick spoke in the wheel of sell-side’s institutional business model.  Interactions between listed companies and with the buy (institutional investors)/sell side are for the latter to get an extra edge by acquiring a deeper insight into the company, with the possibility of some exclusive market sensitive information. In sell-side firms, corporate access is part of the Key Result Areas (KRA) for analysts whereby they have to regularly arrange meetings with the companies they cover for the buy-side. Companies are also eager to regularly interact with institutional analysts and asset managers in the hope that it will lead to additional share purchases boosting the share price, hence both sides benefit from this umbilical relationship.

As a consequence of the SEBI notification there will a sharp reduction in official interactions between companies with the buy and sell-side, as both parties will not want their interactions to be in the public domain. Some buy-side firms, to maintain confidentiality, do not even permit sell-side analysts who had arranged meetings with the company to be present in their one-on-one interaction with the company. Henceforth companies may have to restrict their interactions to quarterly results calls. Till now, at sell-side conferences, not only would firms address gatherings of fund managers, but select high value clients were permitted one-on-one meetings. Now this too will reduce, as the recording of the meeting would have to be in the public domain.

With the implementation of this notification, sell-side analysts can get back to their job of research, which, as corporate access gained prominence, had taken a back seat to arranging meetings with companies for institutional clients. Hopefully, in the stock market there will be a drastic drop in company visit notes, where sell-side analysts behaved like stenographers and dutifully regurgitated company management commentary to their clients. Sell-side analysts can focus on differentiated, thematic research and arranging value-added calls with industry experts instead of the commoditised company calls.

A fallout may be that companies may increase their off-the-record one-on-one meetings, which are held outside the company/sell and buy side premises (coffee shops/conference rooms in hotels). Although this practice is widely prevalent, it is difficult to scale-up, and SEBI must ensure that off-the-record meetings by companies do not increase.

SEBI’s decision is noteworthy in that it aims to reduce the asymmetry of information in the capital market. Hopefully, companies can focus their efforts on performance, and the sell and buy side can concentrate on analysis of public information for investment management.


I, Hemindra Hazari, am a Securities and Exchange Board of India (SEBI) registered independent research analyst (Regd. No. INH000000594). Views expressed in this Insight accurately reflect my personal opinion about the referenced securities and issuers and/or other subject matter as appropriate. This Insight does not contain and is not based on any non-public, material information. To the best of my knowledge, the views expressed in this Insight comply with Indian law as well as applicable law in the country from which it is posted. I have not been commissioned to write this Insight or hold any specific opinion on the securities referenced therein. This Insight is for informational purposes only and is not intended to provide financial, investment or other professional advice. It should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security.

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