The capital market regulator, Securities and Exchange Commission (SEC) has issued a directive amending the disclosure requirements on share dealings by directors of listed entities, and these new rules will come in to force from April 01, 2014.
The new rules while attempting to chuck out the ambiguities hitherto existed on director disclosure also have extended its scope to the CEOs who were an exempted category under the Companies Act.
Another notable rule was to allow up to 5-market days for t he entities to make an announcement to t he Colombo Stock Exchange (CSE) upon an acquisition or disposal of shares by a director or a CEO. This has addressed the loophole in the existing rules where some entities are in the habit of making delayed disclosures citing infrequency of board meetings as an excuse.
The new rules are also likely to safeguard the interest of other shareholders, including the minority shareholders, by making an attempt to curb the opportunity directors and CEOs have to profit as they will always have insider information in relation to a company’s share.
Currently the Section 200 of the Companies Act No.07 of 2007 requires directors to disclose to the board his/her existing share interest in the entity while the Rule 7.8 of the CSE listing rules require making a disclosure to the bourse immediately in case of an acquisition or disposal of such shares.
“Listed entities currently comply with above, but a high degree of variation was observed in many circumstances. The SEC directive will bring in uniformity to the said variation thereby making it fare by all listed entities when disclosing dealings of shares by directors/CEO,” said SEC Assistant Director External Relations and Market Development Tushara Jayaratne.
Such announcement must include the date on which such shares were acquired or disposed, the date on which such acquisition or disposal was notified to the Board of Directors of the listed entity as applicable in terms of the Companies Act and the disclosures specified in Section 200 of the Companies Act.
Apart from the above, a new market entrant must also make an announcement to the CSE pertaining to the relevant interest in all classes of shares held by the directors and the CEO on the day of the listing. In cases of where directors or CEOs have no such share interest that must also be disclosed.
Further announcement must be made within 2-trading days of the share interest by a newly appointed director or CEO or in case of a cessation of office by such personnel. If he/she has no shareholding in the company that must also be disclosed within 2-trading days.
Meanwhile the SEC also said that the shareholding by a close family member of a ‘director’ or ‘a CEO’ will also be considered as relevant interest.
SEC further defines a ‘close family member’ as a director’s or a CEO’s spouse and a child below 18 years. However the following persons will also be considered as a close family member provided such persons are financially dependent and/or acting in concert with the director or CEO of the listed entity.
They are; A child above 18 years, grandparents, parents(c), brothers(d), sisters(e), grandchildren(f) and spouse of the persons referred to (c), (d), (e) and (f) above.
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