The Securities and Exchange Board of India (SEBI) intends to further relax norms for listing by start-ups after poor response to rules announced earlier.

The market regulator has proposed to reduce the minimum trading lot from ₹10 lakh to ₹5 lakh, and mandating market making (wherein a designated entity constantly offers to both buy and sell a stock to sustain the market) for issues that are less than ₹100 core in size, thereby ensuring liquidity in the secondary market. However, even with the new rules, retail investors continue to be barred from companies listing on the institutional trading platform (ITP) and can only access it through devices such as mutual funds.

In June 2015, SEBI had unveiled new rules for technology-intensive companies to raise funds from the markets. But no company had made use of the facility. In a discussion paper published on Friday, SEBI proposed easing the norms even further for such companies wishing to list on the ITP.

According to SEBI, there over 3,000 companies in India that can benefit from the new listing platform. With the revised framework, the market regulator has considerably liberalised the otherwise stringent rules for public offers that bind other companies on the main boards of bourses.

What has changed

The earlier rules had made it mandatory for qualified institutional buyers to hold at least 25 per cent of the pre-issue capital if a company were to list on the ITP. SEBI proposes to expand the definition of institutional investor to include a family trust, an NBFC, a category III foreign portfolio investor and pooled investment funds of a minimum size of $150 million. The ceiling on discretionary allotment to an individual investor has been raised from 10 per cent to 25 per cent of the issue size. However, the total allocation to institutional investors has been brought down to 50 per cent of the issue (from the earlier 75 per cent) while the allocation to non-institutional investors has been increased from 25 per cent to 50 per cent.

SEBI is also considering doing away with the rule that no single shareholder can own more than 25 per cent of the company’s post-issue capital. However, the earlier rules held that certain classes of investors (like venture capitalists) could be exempted from the mandatory six-month lock-in period after an issue. The new proposal wants the lock-in to be applicable to all classes of investors.

Gesu Kaushal, Executive Director, Kotak Mahindra Capital, said, “SEBI is trying to be more enabling for different sets of issuers. The changes in rules are from an issuer’s perspective, and fairly balanced.”

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