SEBI/Corporate Laws News/Updates

  Sub-brokers may not need SEBI stamp, self-regulator on anvil

 Listed firm promoters can make offer for sale: Sebi

The Securities and Exchange Board of India (Sebi) today allowed promoters of listed companies to make offer for sale. The move assumes significance as such promoters can now sell their stake directly to the public.

As of now, promoters who raise money through public issues have to go for follow-on offers or rights issues, which many of them are not comfortable with. So, promoters of many listed companies would sell their stake to private equity firms. But with Sebi permission to make offer for sale, they can avoid their shares getting concentrated in a few hands.

In fact, the market regulator today replaced the Disclosure and Investor Protection (DIP) Guidelines, 2000 with the Issue of Capital and Disclosure Requirements (ICDR) Regulations, 2009 to prevent frequent changes in the norms, besides giving them a legal sanctity.

ICDR would govern all disclosure norms regarding securities and no changes to this can now be made without the consent of Sebi. The new regulations have been issued by the regulator under Section 11 of the Sebi Act, 1992. The changes follow recommendations by Sebi’s Primary Market Advisory Committee, chaired by leading banker Deepak Parekh, set up to simplify the procedures governing various capital-raising measures.The new regulations also contain provisions pertaining to regulation of the activities of merchant bankers, debenture trustees and registrars to an issue.

Consequential amendments have also been made to the Sebi (ESOS and ESPS) Guidelines, 1999 and the Equity Listing Agreement through circulars issued today. Sebi has clarified that a company making a public offer can allot shares only to its own employees and not to employees of its parent organisation or subsidiary under the employee quota.

The new regulations put all companies on a par. Earlier, government companies were enjoying some exemptions in case of filing of results and in eligibility criteria in filing for initial public offers (IPOs). Now there will be no preferential treatment given to any one.

Strategy and Planning Vice President Harshad Apte said, “The DIP guidelines have been changed in keeping with changing times. However, the companies that have filed draft prospectus and received comments will not have to refile them to confirm with the new norms.”

Sebi has also issued another circular under Section 11 of the Sebi Act, read with rule 19(7) of the Securities Contracts Regulation Rules (SCRR), 1957 in respect of matters relating to listing of securities under the SCRR, hitherto contained in the rescinded guidelines.

One of the significant amendments to the listing agreement makes it mandatory for a listed company, which desires to make a further public offer through the fixed price route, to notify stock exchanges at least 48 hours in advance about the meeting of its board of directors for determination of the issue price. Also, companies willing to offer ESOPs will have to make disclosures to the exchanges in a format specified by Sebi.

 SEBI gets tough on promoters issuing preferential warrants

The Securities and Exchange Board of India is turning a stricter eye on company promoters who have been issued preferential warrants, saying that they will have to forfeit the upfront payment made on unexercised warrants.

This is contained in its recently notified Issue of Capital and Disclosure Requirements (ICDR) Regulations 2009, which SEBI made public on Thursday.

These regulations replace the Disclosure and Investor Protection (DIP) Guidelines 2000 that now stand rescinded.

In the matter of preferential warrants, SEBI’s new norms are probably meant to contain the situation following January 2008, when the stock market crash brought the price of several shares below the warrant exercise price for promoters, several of whom decided not to exercise their warrants in full. Promoters will now have to be more careful, as their upfront payment made only against exercised warrants will now be adjusted, said an expert familiar with regulatory matters.

The ICDR Regulations have been primarily created by conversion of the SEBI (Disclosure and Investor Protection) Guidelines 2000, a SEBI circular said.

Tighter norms

SEBI has made some alterations in the matter of group companies; if the promoter of a debarred company is also a promoter, director or person in control of any other company, even that company would now be barred from accessing the capital markets.

The new norms also ban firm allotment to privileged people, who generally used to be relatives, associates or friends of promoters or promoters’ group. Even these categories have to apply through the regular process. Promoters with majority shareholding in a listed company can offer shares to the public straightaway.

This would help the Government, as it is keen on disinvestment opportunities.

Only promoters whose identity, photograph, etc., are disclosed in the offer document shall be recognised as ‘promoters’.

Public Issues

“With the notification of the regulations, there will be a credible and stable framework for disclosure and investor protection, which would go a long way in streamlining the process of issue of capital,” an expert familiar with SEBI matters said.

According to the new ICDR Regulations, the allotment/refund period in public issues has been reduced to 15 days for both fixed-price and book-built issues.

The new regulations have also removed the exemption available to banking companies for IPOs; these companies had until now enjoyed exemptions on norms such as track record, minimum tangible assets, distributable profits, etc.

The issue period for infrastructure companies has been brought on a par with that for other companies, and is now down to 10 days from 21.

As institutional and mutual funds have a separate window for allotment through QIPs now, SEBI has removed mandatory firm allotment to them as it has become redundant.

However, a shareholder of a listed company whose group/sister concern is coming out with IPO, will have a special reservation window.

“The ICDR Regulations would empower the regulator to deal with non-compliance with appropriate enforcement actions, which would be legally sustainable,” said a legal expert.

Some provisions under the earlier DIP guidelines (now rescinded) have been incorporated in the equity listing agreement. In the case of follow-on offers SEBI has introduced a sub-clause to Clause 19 in the equity listing agreement, saying a minimum 48-hour intimation should be given to the bourses of any proposed Board meeting for determination of issue price. Earlier Clause 19 was about prior notification to the stock exchanges, while it directed companies to give 7 days’ prior notification to stock exchanges in case of buyback of securities, declaration/recommending of Dividends, Rights Issue, Issue of Convertible Debentures.

 SUB-BROKERS MAY NOT NEED SEBI STAMP, SELF-REGULATOR ON ANVIL

Sub-brokers in the stock market are likely to be exempted from the requirement of registering with the capital market regulator before starting their operations as per a proposal under consideration of the finance ministry and the Securities and Exchange Board of India (SEBI). The move is to promote self-regulation through an industry body under the supervision of SEBI, said an official who asked not to be named. Other than registration, all other market operations will, however, be directly regulated by SEBI, he said. The proposal is also in line with the recommendations made on Wednesday by the committee on investor awareness and protection chaired by Pension Fund Regulatory Development Authority (PFRDA) chairman D Swarup. The panel suggested a self-regulatory organisation (SRO) to be called the Financial Well-Being Board of India for all investment advisors cutting across products, regulators and markets. The proposed body will also ensure that a set of common standards are followed by all investment advisors. There are about 50,000 sub-brokers now and the number is growing, making it difficult for SEBI to dedicate time and resources for something that could be done at the industry level. “The first level of due diligence of sub-brokers can be done by an SRO, under SEBI’s supervision,” said the official. That is, assessing the eligibility, qualifications and the statutory requirements for operating as a sub-broker will be done by the SRO. The proposal indicates that the government’s plan to rely more on self-regulation by the industry stays so only under the statutory regulator’s supervision and only at the level of filtering new entrants. The global financial crisis had shown that excessive self-regulation may boomerang. 

New Sebi norms reduce public issue time to 10 days

 The Securities and Exchange Board of India (Sebi) has notified new guidelines that, among other things, reduces the overall time period for public issues to 10 days, and seeks disclosures relating to pledged shares in the prospectus. The new guidelines — Issue of Capital and Disclosure Requirements (ICDR) Regulations — replace the existing Disclosure and Investor Protection (DIP) guidelines.

Earlier, there was no clarity on the timeframe, especially when the price band was revised. According to a Sebi circular, ICDR regulations, while incorporating the provisions of DIP guidelines, have included "certain changes made by removing the redundant provisions, modifying certain provisions on account of changes necessitated due to market design and bringing more clarity to the provisions."

Under the new guidelines, the option of a 75% book building and 25% fixed price issue — which was rarely exercised — has been done away with. It has to be either a fixed price issue or a book-built one. Also, companies coming out with fixed price issues would no longer need to publish the price in the draft document.

The new guidelines stipulate that the total issue period should not exceed 10 days, including any revision in the price. The earlier guidelines were not clear on this matter, especially when the price band was revised. Meanwhile, the allotment/refund period in public issues has been capped at 15 days. Previously, the allotment/refund period for fixed price was 30 days.

In another important development and in its attempt to bring in more transparency in the grievance redressal mechanism, the market regulator has directed stock exchanges to disclose details of complaints lodged by investors against trading members and companies listed on the exchange, on their website. These disclosures would also include details pertaining to arbitration and penal action against trading members.

The new regulations also give Sebi the control of the surplus money in green shoe option bank account, as this money would have to be transferred to Sebi’s Investor Protection and Education Fund (IPEF). Earlier, this surplus money was transferred to the Investor Protection Fund of stock exchanges.

Among other things, the new guidelines have also clarified the definition of employees, key management personnel, restrictions on advertisements, currency of financial statements and the documents that have to be attached with the due diligence certificate.

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