Over the last six months, the Securities and Exchange Board of India (SEBI) has been actively engaged in examining areas of concern across segments – primary and secondary market for stocks, bonds and REITs. A flurry of discussion papers were floated to invite public comments. SEBI’s Board, at its meeting last week has taken the process forward by approving changes on a broad swathe of issues. Of particular significance is the stipulation on the disclosure in initial public offerings (IPO) of new age companies.

Most such companies tend to be loss-making at the operating level, making it difficult to value them based on audited financial results alone. SEBIs mandate that the price per share used in past fund-raising rounds and stake sales by the promoters should be disclosed in the offer document is a good step as it will help investors evaluate the IPO price better. The stipulation that a committee of independent directors should recommend if the IPO price is justified, fortifies the disclosure. SEBI has also made some valid concessions to the issuing company on pre-filing of offer documents in IPOs. At present, the DRHP (Draft Red Herring Prospectus) containing all the details concerning the offer is hosted on the SEBI website for several weeks, giving an unfair advantage to competitors of the issuer. The regulator is now giving issuers the option to pre-file the offer document with the regulator, without making it public. This will be conducive to the company, in case the offer is not approved, is postponed or is cancelled. The green signal to the online bond trading platforms to register themselves as stock brokers in the debt segment with SEBI will go a long way towards improving liquidity for corporate bonds. These online platforms have been functioning without any regulatory framework or supervision, but the activity on these platforms shows that individual investors are willing to invest in corporate bonds, if available in smaller lot sizes. The move to reduce the face value of listed privately placed securities will help attract more retail investors.

Inclusion of trading in units of mutual funds in the insider trading regulation was long overdue and will stop those working in fund houses from gaining unfairly from unpublished price sensitive information. But the regulations must be careful to not be unduly restrictive, hampering the decisions of fund managers. The decision to drop the requirement of basing the open offer price of PSU companies on the volume weighted average market price of the preceding 60 days will help the government’s disinvestment programme. Speculative market activity in the period before the open offer has been a factor in derailing the process. Reducing the minimum holding requirement of sponsor groups of REITs from 25 per cent to 15 per cent can incentivise more companies to issue these instruments. Allowing the equity transactions in cash and physical settlement in derivative segment to be set-off against each other will be helpful to investors, reducing their margin requirement. In sum, the reforms announced on Friday by the market regulator have come not a day too late.

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