I. Reforms in the Primary Market
The Board undertook a review of the extant regulatory framework in the primary market and approved certain reforms to revitalize the market, details of which are as under:-
(1) Revisiting the minimum offer to public norm under Rule 19 (2) (b) of Securities Contracts (Regulation) Rules, 1957 (“SCRR”)
In order to make regulatory requirements consistent across the companies irrespective of post issue capitalisation and to facilitate mid size issuers who may not be in need of large funds, SEBI has decided to take up the following proposal with Ministry of Finance to carry out suitable amendments to SCRR
(i) Minimum dilution to public in an IPO shall be 25% or Rs. 400 crore, whichever is lower, for companies with post capitalisation of less than Rs. 4000 crore. This will remove the anomaly that a company just short of Rs. 4000 crore market capitalisation, was required to dilute about Rs. 1000 crore while another company at Rs. 4000 crore market capitalisation was required to dilute only Rs. 400 crore.
(ii) In case of dilution of less than 25%, minimum public shareholding of 25% to be achieved within three years of listing, where required under the rules.
(2) Minimum public shareholding for Public Sector Undertakings (“PSUs”) under Securities Contracts (Regulation) Rules, 1957
- (i) SEBI believes that rules for the market should be uniform across all the companies and should be promoter neutral.
- (ii) Under the current rule, while non-PSUs are required to have minimum 25% public shareholding, PSUs are required to have only 10%, which is discriminatory and inconsistent with the broader market design.
- (iii) Therefore, SEBI has decided to recommend to Ministry of Finance that SCRR should be amended so that all the listed companies including PSUs shall be required to achieve and maintain minimum public shareholding of 25% of the total number of issued shares, within a time period of three years.
(3) Increasing the investment bucket for anchor investor
In order to increase the share of serious, committed investors, SEBI has decided to increase the anchor investor’s bucket to 60% from the current requirement of 30% of the institutional bucket.
(4) Eligibility of shares for Offer for Sale in an IPO with respect to bonus issues on shares held for more than a year
The Board approved the proposal to permit bonus shares issued in last one year prior to filing of the draft offer document to be offered for sale, provided that these bonus shares were issued out of the free reserves or share premium.
(5) Amendments to regulations governing the preferential issue norms
In order to bring consistency between various regulations and to clarify certain regulations governing the preferential issue norms, the following has been approved:
- (i) Replace 'closing price' with 'volume weighted average price' in the pricing formula for preferential issues
- (ii) The regulations concerning pricing of QIPs take into account the effect of stock split, bonus, etc. However, this has not been explicitly provided for in the regulations concerning preferential issues. SEBI has decided to extend the same treatment to preferential issues also.
- (iii) The regulations concerning preferential issues do not provide specifically for pricing of infrequently traded shares. However, SEBI (SAST) Regulations explicitly specifies the pricing methodology in case of infrequently traded shares. It has been decided to extend similar treatment to preferential issues also.
II. Review of SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999
(1) The Board approved the proposals to review the existing regulatory framework on Employee Stock Option Scheme (ESOS) and Employee Stock Purchase Scheme (ESPS) for listed entities and frame regulations for employee benefit schemes involving shares of the company, replacing the existing SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999.
(2) The proposed regulations intend to address issues regarding composition of Trusts, facilitate secondary market acquisitions, enhanced disclosures and better enforceability. The regulations cover employee benefit schemes which deal in shares of the company, in addition to ESOS and ESPS. Such schemes would also be permitted to acquire shares from secondary market under certain conditions so as to avoid forced dilution of capital and to be in line with international practice. Certain safeguards as outlined below have been put in place to improve governance and transparency of the schemes and also address concerns regarding potential market abuse:
- (i) Requirement of shareholders' approval through special resolution for undertaking secondary market acquisitions,
- (ii) Certain limits on secondary market acquisitions,
- (iii) A limit of 10% of the assets held by general employee benefit schemes other than ESOS type of schemes on owning shares of the company / listed holding company,
- (iv) Trusts shall undertake only delivery based transactions and not deal in derivatives,
- (v) Restrictions on sale of shares by the Trusts,
- (vi) At least six month holding period for shares acquired from secondary market,
- (vii) Classifying shareholding of such Trusts separately from 'promoter' and 'public' category,
- (viii) Stricter disclosure and other regulatory obligations.
(3) To ensure a smooth transition for complying with the new regulatory framework, the existing employee benefit schemes have been provided with a time period of one year from the date of notification.
Further, a longer transition period of five years has been provided for the following:
- (i) Re-classifying shareholding of existing employee benefit schemes separately from 'promoter' and 'public' category.
- (ii) Bringing down the level of shares acquired from secondary market within the permissible limits.
- (iii) Reducing own share component to 10% of the total assets of general employee benefit schemes.
III. Manner of Dealing with the Qualified Audit Reports filed by Listed Companies – Status
Pursuant to SEBI Circular No. CIR/DIL/7/2012 dated August 13, 2012, SEBI has constituted Qualified Audit Report Review Committee (QARC) to deal with the Qualified Audit Reports filed by the Listed Companies. QARC has dealt with all the qualified audit reports submitted to the stock exchanges from January 01, 2013 to December 31, 2013 after preliminary scrutiny by the stock exchanges. The Board took note of the performance of QARC, which is summarised as under:
|Particulars||No. of Qualifications|
|No. of audit qualifications dealt by QARC||713|
|No. of audit qualifications where rectification/restatement not required||130|
|No. of audit qualifications referred for rectification||397|
|No. of audit qualifications referred to Financial Reporting Review Board - ICAI (FRRB) for its opinion on restatement||186|
IV. Expanding the framework of Offer for Sale (OFS) of shares through stock exchange mechanism
In order to encourage retail participation in OFS, to enable all large shareholders including non-promoter shareholders to use the OFS mechanism and also to expand the universe of companies to whom OFS mechanism is available, presently being 100 top companies only, the Board has approved the following modifications to the existing OFS mechanism:
(1) Reservation for retail individual investors
- (i) Minimum 10% of the issue size shall be reserved for retail investors i.e. for the investors bidding for amounts less than Rs. two lakhs. In case this percentage is not fully utilized, the unutilized portion may be offered to other investors.
- (ii) Seller of shares may offer a discount to retail investors in accordance with the framework specified from time to time.
(2) Allowing non-promoter shareholders to offer shares through OFS
Non-promoter shareholders having (shareholding) more thatn 10% or such percentage as specified by SEBI from time to time shall be eligible to use OFS.
(3) Expanding the list of eligible companies
OFS mechanism shall be made available for shareholders of top 200 companies by market capitalization.