With an aim to bridge the information asymmetry between the primary and the secondary market investors, SEBI has recently released a discussion paper on “Annual Information Memorandum”. SEBI, in line with an IOSCO principle, has emphasised that reliable, timely and readily accessible information is fundamental for investors.
At present, listed companies in India are required to comply with several disclosure norms arising out of a fragmented set of legal regulations viz. SEBI regulations, listing agreement, stock exchange byelaws, company law legislations, etc. The only comprehensive disclosure that is available for investors is an offer document during public issuance or annual reports published annually by companies.
SEBI has felt the need for consolidation of disclosures in one place to facilitate investors in making informed decision in relation to their investments. SEBI has proposed that listed companies be required to file an Annual Information Memorandum wi th up- to-date information about their financial and operating performance. According to SEBI, this will bring down compliance costs and aid in any future capital raisings. In addition, the disclosure requirements under the annual report would be restricted only to disclosures required under the Companies Act, 1956/2013. In the United States, similar disclosures are already in place such as Form 10K, 10Q, 20F etc.
This move towards consolidation of information is welcome and would go a long way in aiding secondary market investors to make informed investment decisions. However, from the perspective of a company, SEBI should provide further clarity regarding whether the AIM may be used as a shelf prospectus at a subsequent date as a tool to raise capital from public.