Sebi acts to improve trading and access to primary market

While the enhanced exemption limit and issue period are positive steps, the Sebi should tread carefully on the suggestion to simplify mandatory disclosures about group companies at the time of an IP

The Securities and Exchange Board of India (Sebi) has been trying to improve the trading experience and make it easier for companies to access the primary market. For instance, the market regulator has given the go-ahead for extending trading hours for equity derivatives, from 9 am to 11.55 pm, with effect from October 1. This step brings the trading hours for equity derivatives in line with those for commodities. This time extension enables investors to respond quickly to price-sensitive news flow that may occur in other time zones. It, therefore, allows Indian exchanges to compete with exchanges in Dubai and Singapore, which offer India-specific contracts over long trading hours. Sebi is also discussing with the Reserve Bank of India the possibility of extending trading hours for currency derivatives. However, it is not yet clear what contracts will be on offer during the extended time period. Will trading during extended hours be restricted only to index-based instruments or will the full range of indices and single-stock futures and options be made available? Either way, brokerages and exchanges will have to tighten monitoring systems and reconciliation and compliance procedures once the hours are extended.

Then, a consultation paper released by the Primary Market Advisory Committee (PMAC) of the regulator has proposed welcome changes to the norms and processes for raising capital. One of the proposals is that companies should be allowed to float rights issues of up to Rs 100 million without being obliged to submit a draft prospectus. Such an exemption is currently available only for rights issues up to Rs 5 million. The enhanced limit is expected to allow corporates to tap existing shareholders for larger sums, without the burden of more paperwork. The regulator has also suggested reducing the minimum application size for anchor investors to Rs 20 million from the current level of Rs 1 billion in the case of initial public offerings (IPOs) for small and medium enterprises (SMEs). This will ease the stress for anchor investors and may make it easier to raise funding for SMEs. The PMAC has also proposed that IPOs should announce price bands within two working days, instead of taking the current five days to fix bands. However, both IPOs and follow-on public offers will be allowed to extend the actual issue period to five working days, from the current three days, without changes in price bands. 

While the enhanced exemption limit and issue period are positive steps, the regulator should tread carefully on the suggestion to simplify mandatory disclosures about group companies at the time of an IPO. The PMAC has proposed that only information on related-party transactions needs to be mentioned. Currently, disclosures include the financials of group entities as well as any litigation related to group entities. Omissions of such details could lead to a serious loss of transparency. Moreover, the regulator should review certain aspects of the trading regime. For instance, given the extension in trading hours, it becomes very hard to justify the ban on sharing data with foreign exchanges — a step taken supposedly to prevent trading volumes migrating outside India.