SEBI’s directive to provide an exit window for investors in companies that violate listing norms has startled market men.
The regulator has prescribed a standard operating procedure against non-compliance regarding timely submission of annual reports, shareholding pattern, financial results and compliance of corporate governance.
The directive includes penalty on a daily basis for two quarters after which the defaulting company would be shifted to the ‘Z’ category where trades would be settled on trade-to-trade basis. Continued non-compliance would lead to freezing of shares of the promoters and promoter groups. Finally, the shares would be suspended from being traded on the bourses. SEBI said after 15 days of suspension, the shares of the non-compliant company would be available for trading on a ‘trade-to-trade’ basis, on the first trading day of every week, for six months.
A surprised S. Ramasamy, CIO (Debt), LIC Nomura AMC, who also manages equity under the balanced fund, asks, “Where are the buyers for shares of the suspended companies?”
“Freezing the promoter holding should be the first penalty as he knows beforehand that a violation of the listing agreement is about to occur. Ultimately, it is the investor who suffers, whatever be the penalty,” he added.
Ashish Choudhary, a retail investor, said forcing investors to accept any price that is on offer is hardly an option. It seemed that the regulator was interested only in collecting fines and not addressing the issue of losses borne by the retail investors, he pointed out.
As on date, over 1,150 companies on the BSE and over 160 on the NSE remain suspended from trading.
Arun Kejriwal, Founder, KRIS Research, said, “The second step of moving the share to a separate category and then the third step of freezing promoters’ stake should be inter-changed as the biggest loser is the minority shareholder.”
On valuation of the scrip, which once had continuous price discovery, he said the quoted price (if any) would hit the lower circuit filter when it opened for trade once a week. Such trading once a week of suspended shares should be with a bigger band of, say 50 per cent for shares with a last traded price of Rs 10 or more and 100 per cent for shares below, as there would not be buyers for such shares, he felt.
On remedies for such violations, Ramasamy said such promoters should prevented from forming new companies, taking up directorship in other companies and a Web site listing their names should be put up.