Listed companies are required to make a number of disclosures under the equity listing agreement pertaining to corporate actions like financial results, corporate governance. SEBI has issued a circular dated 18 November, 2013 on “Compliance with Provision of Equity Listing Agreement by Listed Companies - Monitoring by Stock Exchanges” (“Circular”), as there are concerns that even though listed companies make disclosures to the stock exchanges the contents of such disclosures are not adequate and accurate. The Circular has made it mandatory for stock exchanges to put in place monitoring mechanisms to ensure adequacy and accuracy of disclosures made by companies through a separate monitoring cell with identifiable personnel.

SEBI, through this Circular has advised the stock exchanges, inter alia, to put in place a monitoring framework in a manner that detects noncompliance with applicable laws such as the SEBI Act, 1992 and the Securities Contract Regulation Act, 1956 and also provide for appropriate mechanisms for handling complaints related to inadequate and inaccurate disclosures. Stock exchanges are expected to submit to SEBI an "Exception Report" with the details of companies which do not respond to clarifications sought by them and/or where the response submitted is not satisfactory, in their opinion.

Initially, it is proposed that the top 500 listed companies (by market cap as on 31 March 2013) will be scrutinized for compliance with Clauses 35, 36, 41 and 49 of the listing agreement for the quarter ending 31 December 2013. However, no specific timeline has been given for stock exchanges to comply with the Circular. The Circular highlights the increasing significance and responsibilities of stock exchanges in ensuring compliance of securities laws by listed companies.

The stock exchanges have also been given the power to seek more information from companies in cases of deficiency in the information provided to them. However, the stock exchanges have only been given a period 2 working days from the date of disclosure to seek clarifications from the company and companies have been given a period of 5 working days to provide information/ clarification to the stock exchanges. If the reply provided by a company is not found satisfactory, the stock exchanges have been directed to treat inadequate and inaccurate disclosures as noncompliance and proceed as per the standard operating procedure laid down by SEBI circular dated 30 September 2013. The deadline mandated by SEBI is rather aggressive and only time will tell whether the stock exchanges will be able to carry out their duties under this Circular effectively. In addition, this will require the stock exchanges to substantially boost their compliance and supervision role in both quality and the number of personnel employed.