OFS pay-in default to attract 10% penalty

Sebi says penalty amount will be credited to IP fund of stock exchange

Capital market regulator Securities and Exchange Board of India (Sebi) today said investors who default on payment under the offer for sale (OFS) route will be charged with a penalty of 10% of the order value.

The market regulator, at its board meeting last week, had provided institutional investors the option of bidding without 100% upfront payment under this share-sale route.

Sebi said the penalty on default of pay-in will be collected from the broker and the amount will be credited to the Investor Protection Fund of the stock exchange.

The OFS framework was introduced last year primarily to help corporates achieve the 25% minimum public shareholding requirement.

Institutional investors now have the option of placing orders with or without 100% upfront payment under the OFS window. Investors who place orders without any upfront payment are not be allowed to cancel or modify their orders. The nature of such trades will be similar to that any secondary market transaction.

Meanwhile, investors who pay 100% upfront margin will have the option of canceling or modifying the trade during the market hours and the settlement shall take place next day of the trade.

The market regulator was a bit apprehensive earlier to allow trades without any upfront payment under the OFS route. However, based on demand from market participants and also as the public shareholding deadline was nearing, Sebi had to provide further relaxations.

“With the deadline of June 2013 to achieve minimum public shareholding approaching, to encourage promoters to offload their shares through OFS route and based on market feedback, it has been decided to modify the OFS framework to make it more economical, efficient and transparent,” Sebi said in a circular.

Currently, there are over 120 private companies with promoter holding greater than 75%. These companies will have to offload over Rs 22,000 crore worth of paper to attain minimum public holding.

Sebi today also clarified that any company is among the top 100 by market capitalisation in any of the last four completed quarters will be allowed to offload shares under the OFS route.