Sebi orders promoters to disclose details of their pledged shares

For long, promoters had managed to get away by not making disclosures about the shares they had pledged with lenders. Not any more. On
Wednesday, Sebi ruled that henceforth, promoters will have to make public the details of their shares pledged with lenders.

The Sebi board’s decision to enhance the disclosure requirements is as per the primary market advisory committee’s recommendations.

The disclosures will have to be made in two ways. One is event-based — as and when the shares are pledged by the promoters, and the other one is periodic, i.e. at the at the time of quarterly results.

"For event-based disclosure of pledged shares, there will be certain limit, and those will be notified when changes are made in regulations. As far as periodic disclosure is concerned, there will be no limit," Sebi chairman CB Bhave said while addressing the media after the Sebi board meet.

"Details of pledge of shares and sale of pledged shares shall be made to the company and the company shall in turn inform the same to the public through stock exchanges," Mr Bhave said, adding that the pledged shares sold by lenders would also have to be disclosed to bourses.

The practice of promoters pledging shares picked up momentum when the stock market was in an upswing.

In some cases, the money raised through this arrangement was for official purposes — meeting working capital requirements, for one. But often, promoters would use this leveraging game to further raise their stakes in the companies they owned.

Promoters of most real estate companies and many mid-cap companies have been raising funds through this route. The game worked well in a rising market but took a disastrous turn when the tide reversed. Most promoters were unable to meet their margin calls, which were triggered by falling stock prices.

As a result, lenders dumped shares, thus exacerbating the stock price decline, leading to further margin calls.

The Sebi board also reviewed the progress made so far in investigations in the matter of Satyam Computer Services. Mr Bhave clarified that the regulator had questioned some key officials of Satyam, with the exception of its chairman.

Sebi is also investigating Satyam’s bank deposits and probing for signs of unusual trading activity in Satyam shares.
The regulator has not formally ordered probe on Maytas Infra so far.

On the issue of remuneration of independent directors, Mr Bhave said it was not for the regulator to decide how much the directors should be paid. He also said Sebi had written to the government on the appointment of independent directors in PSU companies, where the posts were yet to be filled.