The Hindu Business Line : Simplifying the issues

THE SEBI-APPOINTED COMMITTEE SMILE (Securities Market Leveraging Expert Task Force) looking into the capital market's hardware and software infrastructure, is examining ways at simplifying public issue procedures. The committee was set up after the ONGC share issue imbroglio. By SEBI's own admission 28,000 applicants had received neither allotments nor refunds even a month after the issue's closure. The problem persists to this day for many investors. Although initially the registrars (two other issues faced similar problems) were blamed, SEBI cannot escape its share; after all, capital market intermediaries, including registrars and share transfer agents, are licensed by SEBI.

By resorting to the time-tested committee approach, SEBI hopes to be much better prepared next time both with systems and procedures as well as with data on the capabilities of all financial intermediaries. In March, ONGC's share offer came along with seven other quality offerings, a bunching that stretched the market infrastructure to breaking point. The need clearly is for the regulator and the market intermediaries to be much better prepared to face such contingencies. Otherwise investor confidence in the new issue market will dissipate as quickly as it had revived thanks largely to the disinvestment programme. The SEBI committee is on the right track in recommending a simplified application procedure. Technology adaptation, already in evidence in other areas of the stock market and in banking, is clearly the preferred option. Dematerialisation of shares is an example of successful application of technology and has conferred benefits all round. It has also created a rich database that can be leveraged for a variety of stock market activities. SEBI has been contemplating a biometric MAPIN system that is actually an extension of the demat-derived data. The task before SMILE is to build on the achievements. The proposal to enable investing on the basis of the unique identification number (UIN) if accepted — and, importantly, implemented — will be a high point in the evolution of the capital market. It will convincingly demonstrate the country's capability in absorbing the latest technology for the benefit of the financial system.

Words of caution, if any, are relevant only in a context where the ONGC and the other oil companies' issues were faulted as being unfriendly to investors. The book-building route adopted universally made the issue procedure remote. Along with it the cumbersome application forms even if they did not drive away investors did make them commit errors. However, any recommendation at simplifying ought to realise that investors need to be made aware of the risks. Disclosure requirements form part and parcel of the new issue literature. To a large extent the existing application format is cumbersome because it has to incorporate some of the legal requirements that were previously found only in the prospectus. It is doubtful whether any average investor can digest a standard offer document; even if made available. An application has been some kind of a via media. Surely, SMILE while recommending a simplified procedure will take note of the interests of investors and the regulatory concerns.

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