- The Securities and Exchange Board of India (SEBI) has amended the rules related to public issues, takeovers and buy-backs based on feedback received from various market participants.
- The changes were based on the recommendations made by a panel led by capital markets expert Prithvi Haldea, who has submitted the report to SEBI in May, 2018.
- Changes to governance norms for exchanges and depositories were based on the recommendations of the R. Gandhi panel, which had submitted its report in the last week of March.
Initial Public Offering (IPO):
- The new IPO norms include immediate relatives within the definition of promoter and promoter groups.
- The SEBI Board decided to give companies more time for the upward revision of open offer price and announcing the price band for an initial public offer (IPO).
- While raising funds through an IPO, a company can now announce the price band just two days before the opening day of the issue instead of the earlier requirement of five days.
- Financial disclosures now need to be mentioned only for three years instead of five.
- Also, companies making a rights issue have to submit a draft document only if the issue size is more than ₹10 crore. Currently, the threshold limit in such cases is ₹50 lakh.
- Meanwhile, disclosure requirements related to group companies have been made more specific in the SEBI (Issue of Capital and Disclosure Requirements) Regulations.
- The minimum anchor investor size has been reduced to ₹2 crore from the existing ₹10 crore.
- Insurance companies and foreign portfolio investors have been allowed to participate as anchor investors in main board IPOs.
Exchanges and depositories:
- The regulator has also brought parity in terms of shareholding limits for domestic and foreign entities in stock exchanges, clearing corporations and depositories.
- This would allow eligible foreign and domestic entities to hold up to 15% stake in such market institutions.
- Until now, only a select set of investors were allowed to hold 15% stake in exchanges and depositories.
- SEBI has also decided to amend the norms related to the tenure and directorships of managing directors and public interest directors (PID) of such market institutions.
- The tenure of the managing director and the CEO of an exchange, or a depository, will be capped at two terms of five years each, up to the age of 65 years.
- Independent directors can have three terms of three years each, up to the age of 75 years.
- For a PID moving from one market institution to another a one-year cooling period would be mandatory.
- The buyback period of a company’s stock has been redefined as the time between the board’s resolution to that effect and the date on which the payment will be made to shareholders.
- At least 15% of the securities a company proposed to buy back should be reserved for small shareholders, while the maximum limit was capped at 25% of the company’s paid-up capital.
- It also allowed companies to buy back as much as 10% of shares outstanding without shareholders’ resolution.
Registrar and Transfer Agents (RTAs):
- SEBI will also soon set out new norms for enhanced monitoring and supervision of market intermediaries, especially registrar and transfer agents (RTAs).
- Incidentally, SEBI had earlier constituted a committee chaired by R. Gandhi, a former Reserve Bank of India deputy governor, to examine this specific issue regarding RTAs but decided against accepting the committee’s proposals.
- SEBI said it would soon issue a circular for RTAs with the new guidelines.
Purpose of the amendments
- The aim is to remove redundancies, simplify language and factor in the changes in the Companies Act and also the circulars/FAQs issued by SEBI.
- It was taken up because the Issue of Capital and Disclosure Requirements (ICDR) regulations had become unyielding and obsolete, and was still referring to the Companies Act, which were redundant and the language was tedious.
- The amendments in ICDR (Issue of Capital and Disclosure Requirements) Regulations relating to rights issue and public issue will simplify the disclosures in the offer documents, which was otherwise a tedious and a cumbersome process.
- These changes will ease the manner and the time generally taken to raise funds from the public.
- The easier disclosure requirements are aimed at encouraging genuine companies to raise funds through the capital markets route, while the stricter definition of promoter group will ensure that IPOs are not misused to evade taxes.
- The move to permit issuers to announce the IPO price band two days before the issue opening date will enable them to budget for volatility in both the domestic and global markets.
- SEBI has tightened the definition of ‘promoter group’ to prevent fraudulent transactions.
- There were many regulatory norms that were required to take care of the market practices, IPO size and international practices. Hence, the amendments are in the similar direction.
- It was a part of its attempts to rationalise stock market regulations.
- The SEBI was established in 1988 but was only given regulatory powers on April 12, 1992, through the Securities and Exchange Board of India Act, 1992.
- Its headquarters is located at the Bandra Kurla Complex, Business District, Mumbai.
- It also has northern, eastern, southern and western regional offices.
- The Securities and Exchange Board of India (SEBI) is the designated regulatory body for the finance and investment markets in India.
- It plays a key role in ensuring the stability of the financial markets in India, by attracting foreign investors and protecting Indian investors.