Disclose or be damned!

Monday, 30 December 2013 01:30 - - {{hitsCtrl.values.hits}}

SEC tightens grip with a fresh regulatory directive requiring Directors and CEOs to disclose dealings in shares within T+5
Says move aimed at ensuring timely disclosure making it fair by all

In a further regulatory directive, the Securities and Exchange Commission (SEC) has asked Directors and CEOs of listed companies to make disclosure of dealings in shares within the T+5 (trade plus five days) time frame from 1 April 2014. The latest directive comes hot on the heels of SEC taking a tougher stand on ensuring minimum public float of listed companies. See

Daily FT’s story of last Monday (http://www.ft.lk/2013/12/23/sec-gets-tough-on-plcs/) The fresh directive follows the Commissioners of the SEC at their meeting held on 10 December deciding to extend the disclosure requirements pertaining to dealings in shares, currently applicable to directors under the Listing Rules of the Colombo Stock Exchange, to Chief Executives Officers (CEOs) in addition and to specify the time period in which such disclosures shall be made. A spokesman for SEC said at present due to interpretations of Section 200 of the Companies Act and scheduling of meeting dates by listed entities, time to inform directors’ share transactions to the market varies substantially and also the CEO is excluded. The Section 200 of the Companies Act No 07 of 2007 states that a director who has a relevant interest in any shares shall forthwith disclose to the Board. According to Rule 7.8 of the CSE Listing Rules, a Listed Entity is required to make an immediate announcement to the Exchange of a disclosures made by a director in terms of Section 200 of the Companies in any acquisitions or disposal of relevant interest in shares. “Listed entities currently comply with above, but a high degree of variation was observed in many of the circumstances. The SEC directive will bring in uniformity to the variation thereby making it fair by all listed entities when disclosing dealings of shares by directors/CEO,” the SEC spokesman said. “Furthermore acquisitions or disposals of share by directors may reflect sensitive information privy to directors and CEO’s of companies which might not be known to shareholders and this will bridge the gap with increased transparency due to ‘timely’ disclosure,” the spokesman added. All Listed Public Companies are directed to disclose dealings by its directors and CEOs on their relevant interests in shares and other classes of shares in the following circumstances within the specified time period given below; 1. A Listed entity shall make an announcement to the Exchange pertaining to the relevant interest in shares and other classes of shares held by its directors and CEO on the same date the entity is listed on the Colombo Stock Exchange (CSE). Where such director or CEO has no relevant interest, such entity shall be required to disclose such fact to the market on the said date of listing on the CSE; 2. The Listed entity shall make an announcement to the Exchange pertaining to the relevant interests in shares and other classes of shares held by its directors or CEO not later than two market days immediately following the appointment or cessation of office of a director or CEO. Where such director or CEO has no relevant interest, such entity shall be required to disclose that fact to the market within the said period; 3. In the event a director or CEO of a listed entity makes an acquisition or disposal of shares or any class of shares, such listed entity shall make an announcement to the Exchange not later than five market days (T+5) upon such acquisition or disposal. Such disclosure shall contain; a. the date on which such shares or other classes of shares were acquired or disposed; b. the date on which such acquisition or disposal was notified to the Board of Directors of the listed entity as applicable in terms of Section 200 of the Companies Act No.07 of 2007 (Companies Act); c. the disclosures specified in Section 200 of the Companies Act. All Listed Companies are further directed to put in place a procedure to ensure that its directors and the CEO makes the abovementioned disclosures to the listed entity in a timely manner to enable it to comply with the requirements stipulated in this directive. For the purposes of this directive; A director or CEO of a listed entity shall be deemed to have a relevant interest in shares or other class of shares where a close family member of the director or CEO (not being himself a director or CEO of the listed entity) as the case may be, holds or has an interest in the said shares or other class of shares. Close Family Member shall mean and include the spouse and a child below 18 years and any of the following persons provided such persons are financially dependent and/or acting in concert with the director or CEO of the listed entity: a) child above 18 years; b) grandparents; c) parents; d) brothers; e) sisters; f) grandchildren; and g) spouse of the persons referred to (c), (d), (e) and (f) above The time period referred to in the directive as two or three market days as the case may be shall be calculated excluding the relevant date the event occurred. Relevant interest shall have the same meaning as Section 198 of the Companies Act; Provided that the director and CEO shall be required to disclose the relevant interest irrespective of the percentage of shares or other classes of shares required to be disclosed under this directive. The Colombo Stock Exchange has been directed to; i. define the relevant provisions in the Listing Rules of the CSE in relation to “immediate” in line with the Rules provided herein; ii. develop a mechanism to recognize Directors and CEOs of listed entities in the trading system for the purpose of identifying trading by the same; iii. inform all Listed Public Companies of this directive; iv. incorporate the Rules stipulated herein to the Listing Rules of the Colombo Stock Exchange.