SEBI has detailed guidelines on how the offer-for-sale should be followed.

Step 1 - The seller (promoter) appoints a broker for the offer-for-sale.

Step 2 - The seller announces his intention to sell shares at least one trading day before the offer-for-sale opens.

It will have the details of seller, designated stock exchange, date and time of offer open and close. It also has details of number of shares offered, allocation methodology, maximum offer size over and above offer-for-sale size, name of seller’s broker(s).

Finally, it should have details on the date and time of declaration of floor price.

Step 3 - The seller shall declare the floor price after trading hours and before close of business hours to the designated stock exchange a day before the offer-for-sale date (Trade date minus one day). This is applicable if the seller chooses to declare the floor price.

Otherwise, the floor price is given in a sealed envelope to the stock exchange and not disclosed to anybody, including the selling broker.

The stock exchange disseminates it to the market after the offer-for-sale closes.

The offer duration will coincide with trading hours in the secondary market (9 a.m. to 3.30 p.m.). Order processing and funds pay-in shall occur only during trading hours on the exchange platform.

For institutional trades, custodians are expected to conclude bid confirmation with available funds latest by half an hour post the session.

Orders can be placed in a separate window created by the exchange. Order modification is allowed only for bids with 100 per cent upfront margins. Orders cannot be modified in the last 60 minutes of the offer-for-sale.

Information on bid quantity shall be made available by the exchanges at specified time intervals. Exchanges shall disclose the indicative price only during the last 60 minutes of the offer-for-sale.

Price band for the scrip in the normal segment would not be applicable to the offer-for-sale. However, standard tick sizes would apply. Tick size is the minimum price by which share prices can move up or down.

Though normal market trading for scrips under the offer-for-sale would continue, it would be halted if the scrip hits the circuit in the normal market.

Only limit orders are permitted and buyers are allowed to place multiple orders. Orders below floor price (if disclosed) would not be accepted.

Step 4 – All non-institutional investors have to bring in 100 per cent upfront margin.

Institutions are allowed to pay either 25 per cent or 100 per cent as upfront margin.

The seller has to deposit the entire quantity of shares under the offer to the clearing corporation as pay–in before the offer-for-sale starts.

Step 5 – A fourth of shares of OFS is reserved for mutual funds and insurance companies. The stock exchange allocates shares either on price priority (in case of multiple clearing prices) or proportionate basis (in case of single clearing price).

Orders below floor price are not taken up for allocation.

No single bidder other than mutual funds and insurance companies would be allocated over 25 per cent.

Step 6 – The allocation and obligations are intimated to brokers on the trade date (T).

Trades are settled on the T+1 date. The clearing corporation will transfer shares into the demat accounts of successful bidders.

Step 7 – Bidders will forfeit 10 per cent of their bid value to the investor protection fund if they default on the pay-in amount.

Allotment price on the T day would not change due to any default pay-in.

Issuer has the option to conclude the offer or cancel it in full.

The settlement guarantee fund is not available for this facility through stock exchange mechanism.

Step 8 - Brokers would issue contract notes to their clients based on the allotment price and quantity.

(This article was published on July 20, 2012)
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