The Hindu Business Line : Electronic trading of rights entitlements proposed

Mumbai, Sept. 11 After amending its guidelines to reduce the time line for rights issues, capital markets regulator SEBI has now proposed electronic trading of rights entitlements (RE) through stock exchanges.

The regulator had recently amended its Disclosure and Investor Protection guidelines, crunching the time taken for a rights issue to around 43 days from 109 days.

In the proposed process, the REs will be credited into the individual shareholder’s demat account. Currently, the process involves physical renunciation of REs.

The electronic process is intended to minimise manual intervention in the rights issue process, and to improve its efficiency.

“The electronic rights issue process shall apply to shareholders who have an active demat account and hold shares in demat form as on the record date of the rights issue,” said the SEBI concept paper seeking comments from market participants.

Mr R. Balakrishnan, Executive Director, Centrum Capital said: “In the electronic process, the rights entitlements will be traded more transparently compared with the physical process and shareholders could not know at what premium or discount they were being traded.”

“However, there will be arbitrage opportunities for a trader which is a part and parcel of the market,” he said. “The process will be beneficial for companies across-the-board,” he added.

“In the electronic process, after fixing the record date, the issuer will despatch a letter to each shareholder informing the credit and duration of trading in RE,” said SEBI.

The registrar, on the instruction of the issuer, will credit the REs in the given ratio into the demat accounts of the shareholders. Thereafter, the rights issue will open for subscription and renunciation/trading of the REs can commence on the stock exchanges.

The trading in REs will happen on the secondary market platform of the stock exchanges as in the case of ordinary shares, but a separate ISIN (international securities identifying number) will be given for the REs to separate RE-trading from trading of ordinary shares.

The trading of RE may close at least three working days before closure of the rights issue and the ISIN assigned to REs shall be suspended once the trading in REs has closed, SEBI said.

The allotment of shares against the REs and debit of the REs from the demat accounts will be done by the registrar after the depositories make available the list of RE holders.

Related Stories:
SEBI examining possibility of rights issue offering through demat a/c

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