Module: | SEBI LODR & Corporate Governance Frameworks
Q27: Consider the following statements regarding the determination of market capitalization-based compliance requirements under SEBI (LODR) Regulations updated for 2025:
1. Market capitalization-based compliance requirements for listed entities must now be determined based on the average market capitalization of the preceding six months.
2. Prior to this amendment, compliance applicability was determined based on the market capitalization of the entity on a single specific day (March 31) of the year.
3. The regulations include a "sunset clause" of three years, dictating the timeline for the cessation of applicability of these provisions if an entity falls below the threshold.
Which of the above statements is/are correct?
2. Prior to this amendment, compliance applicability was determined based on the market capitalization of the entity on a single specific day (March 31) of the year.
3. The regulations include a "sunset clause" of three years, dictating the timeline for the cessation of applicability of these provisions if an entity falls below the threshold.
Which of the above statements is/are correct?
✅ Correct Answer: D
🎯 Quick Answer:
D. All statements 1, 2, and 3 are correct.Structural Breakdown: Statement 1 is correct; SEBI smoothed the volatility by mandating a 6-month average calculation.
Statement 2 is correct; the historical rule relied entirely on the snapshot value at the close of March 31.
Statement 3 is correct; the 3-year sunset clause ensures a company doesn't drop compliance mechanisms immediately after a temporary dip in market value.
Historical/Related Context: The reliance on a single-day market cap caused immense administrative chaos for companies whose stock prices hovered near the threshold, as a single day's market crash could suddenly exempt them from stringent governance structures they had just spent millions implementing.
Causal Reasoning: Utilizing a six-month average and a three-year sunset clause provides regulatory stability.
It ensures companies enter and exit heavy compliance brackets based on sustained market valuation rather than speculative daily market volatility.