The norms related to initial public offering (IPO) along with the existing regulatory mechanism related to stock exchanges and depositories is being overhauled by the Securities and Exchange Board of India (SEBI).
As per the signals received from SEBI, significant efforts are underway to monitor the functionality of the chartered accountants and company secretaries by bringing them under the purview of SEBI.
SEBI has revamped the IPO norms with the intent to modify and update the existing IPO norms in line with the spirit of other laws and capital market contrivance to weed out the burdensome and outdated provisions in the existing IPO norms and elude any sort of conflict of interest amid IPO norms and other laws.
The following is the gist of the key revisions to the IPO norms and certain associated SEBI regulations:
- The definition of the group companies is tightened and SEBI has imposed the obligation on the company to expressly clarify the inclusion of the specific units (with which units the company has related party transactions) within the period of disclosure of financial information.
- For recognizing the promoter group, shareholding threshold has been enhanced to 20% from the existing 10%.
- A comprehensive chapter is allocated to each issuance of shares type under the proposed Issue of Capital and Disclosure Requirements (ICDR) regulations.
- To ease the compliance burden on the companies, the ICDR regulations are aligned with the related process flow of capital market.
- Suitable incorporation of frequently asked questions, circulars and informal guidance to elude any sort of gaps amid the regulations and capital market practices.
- Following the receipt of the recommendations from the Primary Market Advisory Committee – Rules related to the appointment of top executives in the stock exchanges, clearing corporations and depositories will be destined to undergo major revision.
- An independent director will be entitled to serve on the board of directors of the stock exchanges for a period of 3 years for 3 terms each.
- Following the conclusion of first term, garden fresh appointment process should be employed for the engagement of the managing director.
- Key managerial personnel definition is amended for the inclusion of persons as recognized by the nomination and remuneration committee or any person designated up to two levels under the MD/CEO or persons reporting directly to the CEO/director of the stock exchange/depository.
- Key personnel compensation payment ratio in relation to the median payment to all employees will have to be disclosed by the stock exchange to the SEBI.
- A discussion paper will be rolled out with the objective to mandate the chartered accountants, company secretaries, cost accountants, monitoring agencies and valuers and make them responsible and accountable to guarantee the companies are in compliance with the related laws and regulations and perform/discharge in the best interest of the public shareholders.
- The contribution of the institutional investors (private equity funds, insurance companies and commercial banks) is identified as the promoter’s contribution in the companies without the necessity of identifying the institutional investors as promoters.
- Reduction of time period for financial disclosure requirements from the existing 5 years to 3 years.
- The time amid the issue opening date and issue of price band is reduced to 2 working days from the existing 5 working days.
- Insurance companies, private equity funds and venture capital funds are included in the anchor investor category with the intent to broaden the scope of the anchor investor category.
- Utmost emphasis is placed on related party transaction disclosure requirements with the objective to align such requirements with the Indian Accounting Standard Requirements.
- With the prospect to provide the overview of the company health in terms of business and finance, the prospectus summary section is introduced.
- In addition, for revision of all the related SEBI regulations pertinent to entities involved in third party assignments consultation paper has been issued by the SEBI.
The underlying intent in overhauling the IPO norms is to fortify the disclosure requirements and the prospect of compliance with the related laws and regulations with the intent to guarantee the investor that the most accurate, reliable and credible information will be shared with the investor to strengthen the confidence of the investor which is vital factor for the successful operation of the capital market transactions.
The SEBI efforts to streamline the functionality of the capital markets and fortify the investor confidence in the capital markets by strengthening certain regulations and reducing to bare bones certain procedures for easy consummation of the capital market transactions is a welcome act.
The revised SEBI norms and regulations is the need of the hour which will certainly secure the economic interest of the investors and repose the investors trust and confidence in the process flow of the capital markets and enhance the integrity of the capital market transactions.
Research and inputs by Paruchuri Baswanth Mohan