Exchanges to use encumbrance to shortlist securities for surveillance action

Leading stock exchanges BSE and NSE have decided to take into account all encumbrances to shortlist securities for surveillance action in respect of companies having high level of promoter pledge.

The decision was taken in a joint meeting of exchanges and markets regulator Sebi held on April 13.

It was decided to cover the potential risk to the securities encumbrance will be used for shortlisting of securities under the surveillance action.

Encumbrance shall mean any restriction on the free and marketable title to the shares whether by way of pledge, lien, negative lien, non disposal undertaking or any other covenant, transaction, condition or arrangement, by whatever name called, executed directly or indirectly.

For the purpose of shortlisting of securities under the said measure, the stock exchanges shall take into account all encumbrances viz., the sum total of all kind of encumbrances (by whatever name called) as on date of shortlisting of securities, the exchanges said in similar worded circulars.

Further, the highest value of the encumbrance, from the data available with the stock exchanges and depositories shall be taken, they added.

Earlier in October, exchanges had announced to take additional surveillance measures from November 1 in order to reduce volatility in stocks having high promoters pledge.

The exchanges had decided to levy minimum margin of 35 per cent on the stock (including stocks in derivatives segment) where promoters pledged their holding by more than 25 per cent of the total equity capital and have a market capitalisation of over Rs 1,000 crore.

Sebi, in August, had said promoter of every listed company will have to specifically disclose detailed reasons in a prescribed format for encumbrance if the combined encumbrance by the promoter along with persons acting in concert (PACs) with him exceeds 50 per cent of their shareholding in the company or 20 per cent of the total share capital of the company.

The details were required to be furnished in addition to the already mandated disclosures on encumbrance of shares, invocation of encumbrance and release of the same.