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Annex 2.4: BSE – India
Annex 2.4 – Bombay Stock Exchange (BSE), Mumbai - Self-assessment
Part 1 – Information on the nature and operation of the listing regime
1. PRINCIPLES OF LISTING REGULATION
1. Give an overall indication of the main characteristics of your listing regime.
See below.
2. HISTORICAL DEVELOPMENT, QUALITY OF MARKETS AND LISTING
STANDARDS
1. Briefly describe the history and development of stock markets and listing of
companies on your exchange.
The Stock Exchange, Mumbai (BSE) was established in 1875 as "The Native Share and
Stockbrokers Association" (a voluntary non-profit making association). It has evolved over the
years into its present status as the premier Stock Exchange in the country. BSE was the first
Exchange in Asia and is older than the Tokyo Stock Exchange, which was founded in 1878.
A Governing Board comprising of 9 elected directors (one third of them retire every year by
rotation), an Executive Director, three Government nominees, a Reserve Bank of India
nominee and five public representatives, is the apex body, which regulates the Exchange and
decides its policies and regulates the affairs of the Exchange. The Executive Director & CEO
Officer is responsible for the day-to-day administration of the Exchange.
The Exchange implemented an online electronic trading system (BOLT) in respect of all its
segments and securities in March 1995. At the core of our state-of-the-art, electronic trading
platform is the fault-tolerant Tandem system that provides sub-second response time for
enhanced speed and efficiency in order execution. The Exchange also obtained permission
from Securities and Exchange Board of India (SEBI) for expansion of its BSE-On-Line-Trading
(BOLT) network to locations outside Mumbai in the year 1999. In terms of the permission
granted by SEBI and certain modifications announced later, the members of the Exchange are
free to install their trading terminals at any place in the country.
BSE has an extensive network of 7,800 Trading Terminals located in over 400 cities across
India. The range of products offered includes Equities, SENSEX Futures and Options, Stock
Futures and Options, Central and State Govt. Securities, Corporate Bonds and Exchange
Traded Fund (SPIcE).
BSE has leveraged Internet technology effectively to be a forerunner in real-time
dissemination of market information and corporate announcements in the public domain.
BSE has a sophisticated clearing and settlement system, an excellent and proven risk
management system and a surveillance system which is now ISO 9001:2000 certified.
The average daily turnover of the Exchange during the financial year 2002-2003 (April-March)
was Rs. 12,512.88 million.
Historically the companies have been listed without any option to the Exchange to decide. In
view of the same nearly all the companies coming out with a public issue has been listed on
the Stock Exchange.
2. Is your exchange the only official (regulated) securities exchange in your country?
No. All the stock exchanges that have been granted recognition under the Securities
Contracts (Regulations) Act, 1957 are regulated. In all there are 24 stock exchanges in India.
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3. If there are also other regulated exchanges, what is their relationship with your
exchange e.g. do the exchanges compete for listings, and if so what form does the
competition take e.g. lower fees, differential regulations etc? Is there cross-listing /
trading between the exchanges?
There is no relationship between these other exchanges. Initially there was the concept of a
Regional Stock Exchange (RSE). Any company wanting to list its shares had to be listed on
the RSE. The region is based on the Registered Office of the Company. With effect from
April 2003, the concept of Regional Exchange has been done away with. Multiple listing is
allowed for companies. Competition is based, interalia, on lower fees, reach of the trading
terminals within the country, market depth and service differentiation.
4. Provide statistical information on the profile of your market, including:
ß the dimensions of the listed market e.g. number of companies, market
capitalisation, breakdown between domestic and foreign companies (if
applicable), sizes of company, industry type etc.
ß the investor profile e.g. domestic and international institutional investors, retail
investors etc.
ß listing of domestic companies overseas (equity and depository receipt form)
ß market performance and liquidity.
5649 companies are listed on the Exchange as on 30.6.2003 with a total market capitalisation
of INR 7.344 billion. Listing is only of domestic companies and foreign companies
incorporated outside India are not listed.
3. LEGISLATIVE AND REGULATORY FRAMEWORK FOR LISTING
1. Describe the legislative and regulatory context for regulation of public companies and
exchange listing in your jurisdiction/ exchange. For example, is regulation provided for
by company law, securities law and regulations, exchange listing rules, or a
combination of these?
The regulation of public companies is through the Companies Act. However, public
companies that are listed on the stock exchanges are additionally governed by the guidelines
issued by the Securities and Exchange Board of India (Disclosure and Investor Protection)
Guidelines, 2000, Securities Contract (Regulations) Rules, 1957 and Securities Contact
(Regulation) Act, 1957 and provisions of the listing agreement signed with the Exchange.
2. Summarise the main regulatory provisions relating to corporate and listing regulation.
The main regulatory provisions relating to listing regulations are;
Intimation of details of Board Meeting by the Companies
Issue and Listing of further capital
Quarterly filing of Corporate Shareholding Pattern
Intimation of Price Sensitive Information
Filing of Quarterly/ Half Yearly/ Annual Results including consolidated results and segment
reporting
Corporate Governance disclosures
Change in composition of Board of Directors
Transfer of securities and redressal of investor complaints
4.INSTITUTIONAL RESPONSIBILITIES FOR CORPORATE AND LISTING
REGULATION
1. Outline the responsibilities and roles in listing regulation of government departments,
securities regulatory bodies (e.g., SEC) and/or the stock exchanges respectively.
The regulatory authority for the Capital Market is the Securities and Exchange Board of India
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constituted under the Securities and Board of India Act, 1992. The Exchanges are regulated
by SEBI. The regulatory framework is under the Companies’ Act, 1956, SEBI Act, 1992, the
Securities Contract (Regulations) Act, 1956 and Securities Contracts (Regulations) Rules,
1957.
2. Provide details of how regulatory responsibilities are discharged by the Exchange and
how they are regulated by government or securities commission e.g. requirements for
licensing and supervision of the Exchange.
The Exchange discharges its regulatory role vis-à-vis the companies through provisions under
its Rules, Regulations and Byelaws, the provisions of the Listing Agreement defined uniformly
by the Securities and Exchange Board of India.
A number of laws have been enacted by the Government of India for the orderly conduct of
the securities market in India. The main laws are:
The Securities Contract Regulation Act (SCRA), 1956
The SEBI Act, and the Rules and Regulations under this Act for all intermediaries
The Companies Act 1956 as regards issue, allotment and transfer of securities and various
aspects of management of company.
3. Describe the arrangements for the delegations from the Exchange’s Board (or
governing body) for the discharge of its regulatory functions e.g. to a Listing
Committee, or through delegation to executive staff, or a mixture of both?
The Governing Board of the Exchange is the supreme authority of the Exchange. The
Executive Director (ED) is the principal officer of the Exchange. The ED draws powers from
the Exchange Rules, Regulations and Byelaws of the Exchange. The ED has powers to
delegate the powers vested in him to officers of the Exchange. The Governing Board
generally delegates whereas powers to committees formed especially to oversee the smooth
functioning.
4. What is the ownership and governance model of your exchange, and how does this
impact the Exchange’s discharge of its regulatory functions?
The constitution of the Exchange is of an "Association of Persons" governed by the Rules,
Regulations and Byelaws of the Exchange. The Governing Board is the apex authority and its
constitution is detailed in point no. 1 above. The Governing Board oversees the smooth
Functioning and compliance with the regulatory requirements.
5. Are there any plans to alter the ownership and governance structure e.g. by de-
mutualising or broadening ownership of the Exchange?
Yes. The Exchange has already drawn up plans for its demutualisation. However, the
plans are subject to the clearance of SEBI.
5.LISTING RULES
Summarise briefly the main areas of coverage of your exchange’s listing rules (please note
later questions will require further detail on specific aspects).
The main requirements governing listing are set out in listing agreement of the stock
exchange, Securities Contracts (Regulation) Act, 1956, Securities Contracts (Regulation)
Rules, 1957, Companies Act, 1956 and the SEBI (Disclosure and Investor Protection)
Guidelines, 2000. These contain requirements covering the following matters:
criteria for initial and continuing listing
disclosure in prospectus/ letter of offer
periodic disclosures
disclosure of price sensitive or material events and information
duties of directors and advisers of listed issuers (e.g. sponsors)
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Acquisition of shares
6. USE OF ADVISERS IN THE LISTING PROCESS AND DUE DILIGENCE
PROCEDURES
1. Describe the roles of the following financial and professional advisers in the listing
process:
– sponsors (see also 2. below)
– corporate finance advisers
– lawyers
– accountants and auditors, and
– valuers and other industry experts.
Investment bankers ( Merchant Bankers):
The Investment bankers act as lead managers to the issue to assist the issuer in drafting of
the prospectus and application form; and also help the issuer in appointments of the Bankers
to the Issue, Underwriters and Brokers to the Issue, Registrars to the Issue, Printers and
Advertising and publicity agents. They help the issuer in framing of the composition of capital
structure of the company and the form in which the new issue should be made. Further, they
also offer services for getting of loans from the financial institutions, placing of the new issue
(i.e. firm allotments) and helping the issuer to complete the listing formalities within the
stipulated time and in obtaining of listing permission from all the exchanges as stated in the
offer document.
Underwriters:
Underwriters are those persons who, in a public issue, agree to take up shares/debentures
which are not fully subscribed. They make a commitment to get the issue subscribed either by
others or by themselves. Financial Institutions, bankers, members of the recognised stock
exchanges and approved investment companies/trusts are generally appointed as
underwriters in consultation with the Lead Manager.
Brokers to the Issue:
Brokers are the persons mainly concerned with the procurement of subscriptions to the issue
from the prospective investors residing across the country and indirectly helping for broad-
basing the issue and attract investors.
Bankers to the Issue:
They receive applications with cheque/draft/cash from the investors at the designated
branches from their vast network and acknowledge receipt thereof by stamping and returning
the counterfoils portion. The Bankers to the Issue will also have to inform the daily collection
figures to the Issuer/Lead Manager to the Issue or the Registrar. Bankers to the Issue, also
has the control over the public issue account. Banker to the Issue also acts as the Refund
Banker will posting of refund orders to the partial/unsuccessful applicants.
Legal advisers to the Issue:
The Issuer company may appoint legal advisers to the issue for ensuring that the prospectus,
application forms etc. to be issued by the company are in conformity with the provisions of
various statute, guidelines, circulars, etc. Generally, the Solicitors/Advocates of the company
are appointed as legal advisers to the issue.
Accountants and auditors:
The SEBI (DIP) guidelines require disclosure by the issuer of its financial statements together
with the auditors report for the last 5 financial years immediately preceding the issue of the
prospectus.
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Valuers and Experts:
The issuer may or may not require the services of valuers/expert opinions.
2. Does your exchange/ securities regulator require the appointment of sponsors (i.e.
specialist the financial intermediaries such as investment bankers, that advise the
issuers or underwrite the issues coming to the market) for initial listing and/ or
ongoing listing?
As per the SEBI guidelines, all public issues should be managed by at least one Category I
Merchant Banker registered with the Securities and Exchange Board of India. Appointment of
underwriters/brokers to the issue is not mandatory.
3. If sponsors are required, what are their regulatory status, responsibilities and
functions?
The Merchant bankers are regulated under SEBI (Merchant Bankers) Regulations, 1992. The
underwriters are regulated under SEBI (Underwriters) Regulations, 2002. The bankers to the
issue are regulated under SEBI (Bankers to the Issue) regulations, 1994 Each of the above
regulations defines the roles, responsibilities and functions of each of the above
intermediaries.
4. Describe the due diligence practices carried out for IPO’s, and how they have
developed.
The issuers coming out with an IPO have to necessarily obtain an in-principle approval from
the Exchanges for which the company submits copies of the draft prospectus to the
Exchange. The Exchange has formed a “Listing Committee” (formerly known as “Prospectus
Scrutiny Committee”) to analyse draft prospectus/offer documents of the companies. The
Committee also ensures that the issuer meets the eligibility criteria for listing new companies
on the Exchange and is complying with the various SEBI guidelines issued regarding IPO’s.
Further, the Committee also evaluates the promoters, company, project, financials statements
and several other factors before taking decision in this regard.
The SEBI (Central Listing Authority) Regulations 2003 have been notified on February 13,
2003. The CLA shall have the functions of issuing or rejecting the application made by any
body corporate, mutual fund or collective investment scheme for letter of recommendation for
the purpose of listing, of making recommendations as to the listing conditions and of
discharging such other functions as may be specified by SEBI from time to time. Any
exchange shall not consider any listing application made by any body corporate, mutual fund
or collective investment scheme, unless it is accompanied by a letter of recommendation
issued by the CLA.
7.REQUIREMENTS FOR ELIGIBILITY/SUITABILITY FOR LISTING, MARKET
SEGMENTS AND DIFFERENTIAL REGULATION OF MARKETS AND PRODUCT
TYPES
1. Summarise the main qualitative and quantitative eligibility criteria for initial listing
contained in your listing rules.
- Size
In case of IPO’s, the minimum post issue capital should be INR 50 million with a post issue
networth of INR 200 million and market cap of INR 500 million. However, as per SEBI
guidelines the company should have pre-issue networth of INR 10 million. Companies seeking
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direct listing on the Exchange must have an issued capital of INR 30 million and a market
capitalisation of at least 200 million.
- Operating history
As the companies coming out with IPO process, necessarily should have a track record of
distributable profits for at least three out of the immediately preceding 5 years, so the
company has to be in existence for at least 3 years.
- Audited Financial Track Record
As the issuer has to publish financial statements for preceding 5 years and even if no
accounts are made, a statement of accounts for that part of the period indicating the profit and
loss and assets and liabilities should be accompanied by certificate from the auditors.
- Profits History
As per SEBI guidelines, a track record of distributable profits in terms of section 205 of the
Companies Act, 1956, for at least three (3) out of immediately preceding five (5) years.
- Sufficiency of working capital
There is no such criteria.
- Minimum public float
At least 10% of securities are offered to the public for subscription subject to the following
conditions.
Minimum twenty lakh securities are offered to the public
The size of the offer to the public is minimum 1 billion INR and
The issue was made only through book building method with allocation of 60% of the issue
size to the qualified institutional buyers as specified by SEBI.
If a company does not fulfil the aforesaid conditions, it shall offer at least 25% of each class or
kind of securities to the public.
- Placement and spread of shareholder base
No such criteria.
- Capability of directors and non-executive directors
No requirements as to capability of directors or their longevity with the company. However,
the board should consist a mix of non-executive directors and independent directors. The
Board should comprise a minimum of 50% non-executive directors. Where the Chairman of
the company is executive, 50% of the board should comprise of independent directors and
where the Chairman is non-executive, one-third of the board should comprise of independent
directors.
2. Are there explicit de-listing/ cancellation of listing criteria, and, if so, what are the
procedures for de-listing?
The delisting is governed by SEBI (Delisting of Securities) Guidelines, 2003. The procedures
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for delisting are:
Delisting may be under any of the following categories (i) voluntary delisting by the promoters,
(ii) Compulsory delisting by Stock Exchanges or (iii) Delisting through Rights Issue.
- Voluntary Delisting
The securities should have been listed for a minimum period of 3 years on any stock
exchange.
An exit opportunity is given to the shareholders in accordance with book building procedures.
This need not be given if the securities continue to be listed on the Stock Exchange, Mumbai
(BSE) or National Stock Exchange (NSE).
This requires special resolution to be passed by the shareholders.
A public announcement has to be made by the promoters in this regard.
Application to be made to the Exchanges for delisting.
Where the minimum no. of shares outstanding is not acquired by the promoters such that the
public shareholding does not fall below the minimum required for continued listing, the
delisting offer is considered to have failed and no shares tendered by the shareholders will be
accepted by the promoters.
The consideration for acquiring the shares will be paid in cash only.
Instruments pending conversion will not be permitted to be delisted.
- Compulsory delisting by Stock Exchanges
Company should have been suspended for a minimum period of 6 months.
The Exchange should give wide publicity for the same.
Show cause notice should be issued to the companies.
The promoters shall compensate the shareholders by payment of fair value for the shares
held.
- Delisting pursuant to a Rights Issue
Where the promoters agree to acquire the unsubscribed portion of rights issue such that the
public shareholding consequent to such acquisition falls below the minimum requirement of
continued listing, the promoters shall offer to buyback the balance shares from the existing
shareholders at the rights issue price or agree to make an offer for sale to increase the
minimum public shareholding.
This intent of the promoters shall be stated in the letter of offer.
3. Is differential regulation applied to market segments or product types e.g. is there a
second market (also sometime called second board or development companies
market) or other types of securities listed (e.g. debt securities)?
There are different criteria/guidelines for designated financial institutions and for issuer with
commercial operation of less than 2 years and post-issue capital of less than 5 crores.
There are different criteria/guidelines for debt securities.
4. If so, please supply details of the regulatory standards and listing procedures applied
to each separate market and product type.
Chapter XII of the SEBI (DIP) guidelines, 2000 enlists criteria/guidelines for designated
financial institutions.
- Promoters contribution
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There shall be no requirement of minimum promoters' contribution in respect of any issue by
DFIs.
- Reservation for employees
The DFIs may make a reservation out of the proposed issues for allotment only to their
permanent employees including their Managing Director(s) or any whole time Director.
Such reservation shall be restricted to the number of permanent employees on the pay rolls of
the DFIs as on the date of the offer document multiplied by 200 shares of Rs. 10 each or 20
shares of Rs. 100 each as the case may be per employee, subject to a maximum of 5% of the
issue size.
The shares allotted under the reserved category shall be subject to a lock-in for a period of 3
years.
In case of public issue, unsubscribed portion, if any, in the reserved category shall be added
back to the public offer.
In case of rights issue, unsubscribed portion if any, shall lapse.
- Pricing of issues
The DFIs may freely price their issues subject to the following conditions:
The DFIs have 3 years' track record of consistent profitability with profits shown in their
respective audited profit and loss accounts after providing for interest, tax and depreciation in
3 out of immediately preceding 5 years with profit during the last 2 years prior to the issue.
Where interest charged on debts outstanding for more than three years has been taken into
Profit & Loss Account, the same shall be excluded for reckoning net profit.
- New financial instruments
DFI issuing any new financial instruments such as Deep Discount Bonds, Debentures with
Warrants, Secured Premium Notes, etc., shall make adequate disclosures, more particularly
relating to the terms and conditions, redemption, security, conversion and any other relevant
features of such instruments.
Subscription list for public issues shall be kept open for minimum of at least 3 working days
and maximum 21 working days and the same shall be disclosed in the offer document.
Rights issues shall be kept open for a minimum of 15 days but not exceeding 60 days.
(a) The prospectus shall specify the minimum and maximum target amount proposed to be
raised through the issue.
(b) The maximum target amount shall not exceed twice the minimum target.
(c) The requirement as to the minimum subscription of 90% applicable to the issues made by
companies shall not apply to an issue made by DFI.
(d) DFI is free to retain any amount received by it even if it is less than the minimum target
amount.
Chapter X of the SEBI (DIP) guidelines, 2000 enlists specific criteria for debt securities to be
issued.
- Requirement of credit rating
No public or rights issue of debt instruments (including convertible instruments) in respect of
their maturity or conversion period shall be made unless credit rating from a credit rating
agency has been obtained and disclosed in the offer document.
For a public/rights issue of debt security of issue greater than or equal to Rs.100 crores two
ratings from two different credit rating agencies shall be obtained.
Where credit rating is obtained from more than one credit rating agencies, all the credit
rating/s, including the unaccepted credit ratings, shall be disclosed.
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All the credit ratings obtained during the three (3) years preceding the public or rights issue of
debt instrument (including convertible instruments) for any listed security of the issuer
company shall be disclosed in the offer document.
- Requirement in respect of Debenture Trustee
In case of issue of debenture with maturity of more than 18 months, the issuer shall appoint a
Debenture Trustee.
The names of the debenture trustees must be stated in the offer document.
A trust deed shall be executed by the issuer company in favour of the debenture trustees
within six months of the closure of the issue.
- Creation of Debenture Redemption Reserves (DRR)
A company has to create DRR in case of issue of debenture with maturity of more than 18
months.
The issuer shall create DRR in accordance with the provisions given below;
If debentures are issued for project finance for DRR can be created up to the date of
commercial production.
The DRR in respect of debentures issued for project finance may be created either in equal
instalments or higher amounts if profits so permit.
- Distribution of Dividends
In case of new companies, distribution of dividend shall require approval of the trustees to the
issue and the lead institution, if any.
In the case of existing companies prior permission of the lead institution for declaring dividend
exceeding 20% or as per the loan covenants is necessary if the company does not comply
with institutional condition regarding interest and debt service coverage ratio.
Dividends may be distributed out of profit of particular years only after transfer of requisite
amount in DRR.
If residual profits after transfer to DRR are inadequate to distribute reasonable dividends,
company may distribute dividend out of general reserve.
- Redemption
The issuer company shall redeem the debentures as per the offer document.
- Creation of Charge
The offer document shall specifically state the assets on which security shall be created and
shall also state the ranking of the charge/s. In case of second or residual charge or
subordinated obligation, the offer document shall clearly state the risks associated with such
subsequent charge. The relevant consent for creation of security such as pari passu letter,
consent of the lesser or of the land in case of leasehold land etc. shall be obtained and
submitted to the debenture trustee before opening of issue of debenture.
In case of Roll over of Non-Convertible portions of Partly Convertible Debentures(PCDs)/Non
Convertible Debentures (NCDs).
In case, the non-convertible portions of PCD/NCD issued by a listed company, value of which
exceeds Rs. 50 lacs, can be rolled over without change in the interest rate
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- Other requirements
No company shall issue of FCDs having a conversion period of more than 36 months, unless
conversion is made optional with "put" and "call" option
If the conversion takes place at or after 18 months from the date of allotment, but before 36
months, any conversion in part or whole of the debenture shall be optional at the hands of the
debenture holder.
No issue of debentures by an issuer company shall be made for acquisition of shares or
providing loan to any company belonging to the same group.
Sub-clause (a) shall not apply to the issue of fully convertible debentures providing conversion
within a period of eighteen months.
Premium amount and time of conversion shall be determined by the issuer company and
disclosed.
The interest rate for debentures can be freely determined by the issuer company.
Similarly, Chapter VII specifies requirements for the unlisted companies to be listed on
OTCEI.
An unlisted company, with a commercial operation of less than two years proposing to issue
securities to the public, resulting in post issue capital of Rs.3 crores and not exceeding Rs.5
crores, shall be eligible to apply for listing of securities only on those stock exchange(s) where
trading of securities is screen-based.
The issuer company shall appoint market maker(s) on all the stock exchanges where the
securities are proposed to be listed.
The appointment of market makers shall be subject to the following: -
At least one market maker undertakes to make market for a minimum period of 18 months
and at least one additional market maker undertakes to make market for a minimum period of
12 months from the date on which the securities are admitted to dealing.
Market makers undertake to offer buy and sell quotes for a minimum depth of 3 marketable
lots;
Market makers undertake to ensure that the bid-ask spread (difference between quotations for
sale and purchase) for their quotes shall not at any
time exceed 10%:
The inventory of the market makers on each of such stock exchanges, as on the date of
allotment of securities, shall be at least 5% of the proposed issue of the company.
The unlisted companies whose capital after the proposed issue of securities is less than Rs.3
crores shall be eligible to be listed only on the Over the Counter Exchange of India.
5. Are differential regulatory requirement applied to any specialist types of issuers (e.g.
property or technology companies)?
A banking company including a Local Area Bank (hereinafter referred to as Private Sector
Banks) set up under sub-section (c) of Section 5 of the Banking Regulation Act, 1949 and
which has received license from the Reserve Bank of India, or
A corresponding new bank set up under the Banking Companies (Acquisition and Transfer of
Undertaking) Act, 1970 Banking Companies (Acquisition and Transfer of Undertaking) Act,
1980, State Bank of India Act 1955 and State Bank of India (Subsidiary Banks) Act, 1959
(hereinafter referred to as “public sector banks”).
An infrastructure company whose project has been appraised by a Public Financial Institution
or Infrastructure Development Finance Corporation (IDFC) or Infrastructure Leasing and
Financing Services Ltd. (IL&FS) and not less than 5% of the project cost is financed by any of
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the institutions referred to in sub-clause (a), jointly or severally, irrespective of whether they
appraise the project or not, by way of loan or subscription to equity or a combination of both.
6. What are the factors effecting the willingness and ability of public companies to apply
for listing on your exchange (e.g. costs, concerns of founders on diluting control,
requirements of listing rules etc.)?
[Not supplied]
7. Provide detailed information on the cost of initial listing and maintaining a listing on
your exchange, and compare this with the costs of raising funds form alternative
sources of business funding in your economy. If detailed information is not readily
available please provide anecdotal information on the costs, broken down to indicate
the relative costs of advisory/ underwriting fees, accountant’s fees, listing fees payable
to the Exchange, other regulatory fees etc.?
[Not supplied]
8.SOURCES OF INFORMATION AT INITIAL PUBLIC OFFERING/ LISTING, IPO
DOCUMENT APPROVAL AND LISTING APPLICATION PROCEDURES
1. Prospectus and registration requirements:
Summarise the requirements from company law, securities law or other regulations and rules
for the publication of a prospectus or listing document.
Chapter VI of SEBI (DIP) guidelines, 2000.
Section 56 of the Companies Act, 1956
(as discussed in point 9.3 below)
2. Further issues:
Do further issues of securities require the publication of further information, and if so what are
the specific requirements?
In case of rights issues, the company has to publish information in the Letter of Offer, the
specific requirements of which are given in Part III, Chapter VI of the SEBI (DIP) guidelines,
2000. The information to be included in the Letter of Offer is as below:
Capital structure of the company
Terms of the present issue
Particulars of the issue
Company, management and project
Financial performance of the company for the last five years:
Following particulars in regard to the listed companies under the same management
within the meaning of section 370(1B) which made any capital issue in the last three
years.
Management discussion and analysis of the financial conditions and results of the
operations as reflected in the financial statement.
Undertaking by Directors
Further disclosures required for debt issues:
Premium amount on conversion, time of conversion.
In case of PCDs/NCDs, redemption amount, period of maturity, yield on redemption of the
PCDs/NCDs.
Full information relating to the terms of offer or purchase including the name(s) of the party
offering to purchase the khokhas (non-convertible portion of PCDs).
The discount at which such offer is made and the effective price for the investor as a result of
such discount.
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The existing and future equity and long-term debt ratio.
Servicing behaviour on existing debentures, payment of due interest on due dates on term
loans and debentures.
That the certificate from a financial institution or bankers about their no objection for a second
or pari passu charge being created in favour of the trustees to the proposed debenture issues
has been obtained.
3. Prescribed information disclosure:
What information is required to be disclosed in a prospectus or listing document? Please
summarise the main areas of information required. Examples of areas are information on:
- the persons responsible for the prospectus, auditors and other advisers
- the shares to be listed
- the company and its capital
- the company’s activities
- the issuer’s assets and liabilities, financial position and profits and losses for the track
record period
- the issuer’s management, and
- recent developments and prospects of the company.
The areas of information as per Chapter VI of SEBI (DIP) guidelines, 2000:
General information
Disclaimer Clause
Minimum Subscription Clause
Issue Schedule
Intermediaries and auditors
Credit Rating
Underwriting of the issue
Compliance Officer
Capital Structure of the company
Terms of the present issue
Particulars of the issue
Company, Management and Project
Management Discussion and Analysis of the Financial Condition and Results of the
Operations as Reflected in the Financial Statements.
Following particulars in regard to the company and other listed companies under the same
management within the meaning section 370 (1)(B) of the Companies Act, 1956 which made
any capital issue during the last three years shall be given;
Promise vis-à-vis Performance
Basis for Issue Price
Outstanding litigations or Defaults
Disclosure on Investor Grievances and Redressal System
Financial Information
Statutory and other information
4. Financial information:
In particular what financial information is required to be published by an IPO company/ initial
listing applicant? What accounting standards are required to be adhered to by reporting
accountants/ auditors? Is there an explicit working capital requirement at the IPO/ initial listing
stage?
A report by the auditors of the company with respect to a profits and losses and assets and
liabilities and the rates of dividends, for each of the five financial years immediately preceding
the issue of the prospectus
If the company has no subsidiaries, the report shall so far as regards profits and losses, deal
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with the profits or losses of the company (distinguishing items of a non- recurring nature) for
each of the five financial years immediately preceding the issue of the prospectus; and so far
as regards assets and liabilities, deal with the assets and liabilities of the company and the
last date to which the accounts of the company were made up.
If the company has subsidiaries, the report shall so far as regards profits and losses, deal
separately with the company’s profits or losses and in addition deal either (i) as a whole with
the combined profits or losses of its subsidiaries, (ii) individually with the profits or losses of
each subsidiary.
So far as regards assets and liabilities, deal separately with the company’s assets and
liabilities and in addition, deal either (i) as a whole with the combined assets and liabilities of
its subsidiaries, with or without the company’s assets and liabilities or (ii) individually with the
assets and liabilities of each subsidiaries and shall indicate as respects the assets and
liabilities of the subsidiaries
If the proceeds, or any part of the proceeds, of the issue of the shares or Debentures are or is
to be applied directly or indirectly (i) In the purchase of any business; or (ii) in the purchase of
an interest in any business and by reason of that purchase, or anything to be done in
consequence thereof, or in connection therewith; the company will become entitled to an
interest as respects either the capital or profits and losses or both, in such business exceeding
fifty percent thereof; (iii) a report made by accountants (who shall be named in the prospectus)
upon;
a. the profits or losses of the business of each of the five financial years immediately
preceding the issue of the prospectus and
b. the assets and liabilities of the business at the last date to which the accounts of the
business were made up, being a date not more than one hundred and twenty days before the
date of the issue of the prospectus.
If
a. the proceeds, or any part of the proceeds, of the issue of the shares or debentures
are or is to be applied directly or indirectly in any manner resulting in the acquisition by the
company of shares in any other body Corporate; and
b. by reason of that acquisition or anything to be done in consequence thereof or in
connection therewith, that body corporate will become a subsidiary of the company; and
c. a report made by accountants (who shall be named in the prospectus) upon (i) the profits
or losses of the other body corporate for each of the five financial years immediately
preceding the issue of the prospectus; and (ii) the assets and liabilities of the other body
corporate at the last date to which its accounts were made up.
d. The said report shall (i) Indicate how the profits or losses of the other body corporate
dealt with by the report would, in respect of the shares to acquired, have concerned members
of the company and what allowance would have fallen to me made, in relation to assets and
liabilities so dealt with for holders of other shares, if the company had at all material times held
the shares to be acquired; and (ii) Where the other body corporate has subsidiaries deal with
the profits or losses and the assets and liabilities of the body corporate and its subsidiaries in
the manner provided by sub-clause (2) above in relation to the company and its subsidiaries.
The accounting standards that a made mandatory by the Institute of Chartered Accountants of
India are applicable while preparing these results.
No, explicit working capital requirement at the IPO/ initial listing stage.
5. Forward-looking information:
Is the inclusion of forward-looking information in offering documents permitted? If so, how is
this presented e.g. are there requirements for a forecast to be reported upon.
The inclusion of forward-looking information in offering documents is permitted. Statements
that describe objectives, plans or goals are also forward-looking statements.
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6. Pro forma financial information:
Is the use of pro forma financial information permitted in offering documents?
SEBI vide its circular dated 4th August, 2000 has informed that no forecast of projections
relating to financial performance of the issuer company shall be given in the offer document.
7. IPO/ initial listing approval:
What methods of assessment are used by the exchange and regulatory authority for the
approval of IPO’s and initial listings e.g. do the authorities pre-vet documentation, or is filing
sufficient?
The issuer has to file a draft prospectus to SEBI at least 21 days prior to the filing the
prospectus with the Registrar of Companies. The regulatory authority would check adherence
to all requirements and disclosure of all material information. SEBI would then issue an
acknowledge card. This process is called vetting of the draft prospectus.
8. Regulation of the marketing of securities:
What approach is taken to the regulation of marketing securities? For example are research
analysts reports used for this purpose? Are “roadshows” used to encourage investor interest
in an IPO?
Chapter IX specifically lays down guidelines for issue of advertisements by the issuer
companies. Roadshows may be used to encourage investor interest in the IPO. As regard the
research reports, the Merchant Banker should comply with the following:
the research report is prepared only on the basis of published information as contained in the
offer document.
no selective or additional information or information extraneous to the offer document shall be
made available by the issuer or any member of the issue management team/ syndicate to only
one section of the investors in any manner whatsoever including at road shows,
presentations, in research or sales reports or at bidding centres etc.
no report or information, other than the contents of the draft offer document shall be circulated
by the issuer or any member of the issue management team/ syndicate or their associates,
after the date of receipt of observations from SEBI.
The advertisement code is observed while circulating the research reports, and that the risk
factors are reproduced wherever highlights are given, as in case of an advertisement.
9.CONTINUING OBLIGATIONS OF LISTING – DISCLOSURE REQUIREMENTS
1. Provide a summary of the main types of continuing disclosure requirements under the
following categories:
- Disclosure of “price sensitive” information
Change in general character or nature of business
Disruption of operations due to natural calamity
Commencement of commercial production/ commercial operations
Developments with respect to pricing/ realisation arising out of change in the regulatory
framework
Litigation/ dispute with a material impact
Revision in ratings
Issue of any class of securities
Acquisition, merger, de-merger, amalgamation, restructuring, scheme of arrangement, spin
offs or setting divisions of the company
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Sub-division of equity shares of company
Voluntary delisting by the company from the stock exchange
Forfeiture of shares
Any action which will result in alteration in the terms regarding redemption/ cancellation/
retirement in whole or in part of any securities issued by the company.
Information regarding opening, closing of status of ADR, GDR, or any class of securities to be
issued abroad
Cancellation of dividend/ rights/ bonus etc.
Quarterly/ Half Yearly/ Annual Results, Issue of capital.
- Disclosure of periodic financial information and the accounting standards this is
required to be prepared to
Companies have to publish quarterly/ half yearly/ annual financial results as well as
consolidated financial results. The accounting standards that a made mandatory by the
Institute of Chartered Accountants of India are applicable while preparing these results.
- Specific prescribed disclosures of material information and actions on certain
transactions e.g. acquisitions, disposals and related transactions
There are two regulations that govern such information viz. SEBI (Substantial Acquisition of
Shares and Takeover) Regulations, 1997 and SEBI (Prohibition of Insider Trading)
Regulations, 2002.
- Disclosure of director’s and major shareholder’s dealings, and
This is governed by the SEBI (Prohibition of Insider Trading) Regulations, 1992 and also SEBI
(Substantial Acquisition of Shares and Takeover) Regulations, 1997.
- Other prescribed disclosures
None other than those covered above.
2. What mechanisms are used to ensure wide dissemination of information to the market.
Investors and the public? For example are company announcements published in the
newspapers and/or on dealer- broker trading screens?
The exchange uses the following medium for dissemination of information to the market:
website of the exchange viz. www.bseindia.com to disseminate all Corporate Filings and
Corporate announcements in a real-time mode
online dissemination through trading terminals of the Exchange
print media through bulletin and notices of the Exchange
10.CORPORATE GOVERNANCE PROVISIONS
1. What role does your listing regime play in the overall regulation of corporate governance in
your country?
The applicability of corporate governance has been made mandatory through the listing
agreement since March, 2001. The applicability has been made in a phased manner by SEBI
with respect to all the companies listed on the Exchange. However, with respect to new
companies seeking listing on the Exchange, corporate governance is applicable immediately.
The companies have to make quarterly report to the Exchanges as well as annual disclosure
in the annual report to the shareholders.
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2. In particular provide a summary of the main types of requirements under the following
categories, cross-referring to other answers where the information has already been provided:
ß Disclosure of “price sensitive” information
Refer to section 10.1 above.
ß Directors expertise and experience to manage their business
There is no such requirement as directors’ expertise or experience to manage their business.
However, the corporate governance code has prescribed the composition of board of directors
to have mix of non-executive/ independent directors.
ß Enshrinement of certain shareholder rights
Shareholders rights are enshrined in the listing agreement, SEBI (Disclosure and Investor
Protection) Guidelines and also the Companies Act, 1956.
ß Takeovers regulation
SEBI has introduced the SEBI (Substantial Acquisition of Shares and Takeover) Regulation,
1997 which inter alia includes, companies to make periodic disclosures to the Exchange
based on the intimation received from the acquirers. The responsibility has also been cast on
the acquirers to inform the company within a time limit of their acquisition/ sale. In case of
certain acquisitions, the acquirers need to inform the Exchange in advance.
ß Proscription of insider dealing
SEBI has through SEBI (Prohibition of Insider Trading) Regulations, 2002 made it mandatory
for all listed companies to adhere to the regulations. The regulations defines the 'insiders' and
also casts responsibilities on them before/ after undertaking the securities transactions.
Regulation also requires the 'insiders' being company employees requires them to obtain prior
approval of the company before undertaking securities transactions.
ß Adoption of corporate governance codes.
SEBI has made the corporate governance code applicable to listed companies in a phased
manner. However, in case of companies seeking listing for the first time the same is made
applicable immediately.
ß Adoption of codes regulating of directors dealings, and
These are governed by SEBI (Substantial Acquisition of Shares and Takeover) Regulations,
1997 and SEBI (Prohibition of Insider Trading) Regulations, 2002.
ß Disclosures and action on certain transactions.
Covered under the above heads.
11.COMPLIANCE MONITORING OF CONTINUING OBLIGATIONS AND
ENFORCEMENT
1. Summarise the compliance monitoring and enforcement mechanisms in your listing
regime?
All companies listed on the Exchange have to execute the listing agreement with the
Exchange. Apart from this the companies also have to abide by the Rules, Regulations and
Bye-Laws of the Exchange and any special directives issued by SEBI and Ministry of Finance.
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The Exchange continuously monitors the compliance of the companies with the listing
agreement. For non-compliance with any clause of the listing agreement, the Exchange can
proceed to initiate action against the company pursuant to the powers vested in the Rules,
Regulations and Byelaws, Listing Agreement. Also, the Exchange can initiate proceedings
under the Securities Contracts (Regulations) Act, 1956 against the company and the directors.
2. In particular, provide details of the approach taken in the following categories:
- monitoring the content and timing of disclosures by issuers of information at
initial listing and on an on-going basis
The monitoring of content and timing of disclosures are made for all price sensitive
information. In case of issuers coming to the Exchange for initial listing, all relevant
disclosures as required to be made by any listed company are called for.
- market surveillance, supervision and compliance monitoring of trading activities,
including review of pricing of orders
The Exchange has an on-line surveillance monitoring system for price and position
monitoring. This is continuously done during the market hours.
- monitoring the timely and orderly release of price-sensitive information
The Exchange has an alliance with a third party vendor for providing the service of
dissemination of information on the website of the Exchange under supervision of the
Exchange. The dissemination of information on the trading terminals and print media is
monitored by the within the department. Dissemination is done on a real-time basis.
- monitoring of the timing and content of quarterly review statements and half-
yearly and annual financial statements
The monitoring of content and timing of disclosures are made for all price sensitive
information.
- vetting of the initial suitability of applicant firms applying to act as Sponsors (i.e.
corporate advisers such as investment banks) and ongoing review of continuing
compliance with eligibility criteria
There is no concept of sponsors in the Indian Capital Market. However, the Exchange does
not review the appointment of Merchant Bankers by the companies. Suitability of a Merchant
Banker is monitored by SEBI.
- monitoring of adherence of Sponsors to their ongoing duties to the Exchange and
instituting disciplinary proceedings against them, and
Exchange has no such powers.
- investigating suspected market abuses and liaising with other regulatory
agencies.
As stated earlier, the Exchange has an on-line price and position monitoring system. Any
abnormalities/ aberrations noticed during the trading session or as part of an investigation is
reported to SEBI for further course of action. The Exchange initiates actions based on the
directions received from SEBI.
3. Is suspension of listing or trading of a company’s securities used as a regulatory
device on your market.? If so, provide details of the situations where suspension takes
place.
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Yes, suspension is used as a regulatory device. Situations where suspension takes place is
Continuous non-compliance with requirements of the listing agreement. Surveillance action
on account of price rigging. Large number of unresolved investor complaints.
However, this is not the only recourse taken by the Exchange. The other types of action taken
by the Exchange are:
Warnings
Putting securities trading on Trade-to-Trade basis
Transferring securities to “Z” group. “Z” group consists of companies that are non-complying
with listing requirements, investor unfriendly companies. This cautions the investors from
trading in such types of companies.
Delisting pursuant to the new guidelines issued by SEBI – SEBI (Delisting of Securities)
Guidelines, 2003
Part 2 – Views on how the listing regime could be strengthened and improved
All SAFE member exchanges are asked to make a submission expressing their views
on the strengths, weakness, opportunities and threats of their current listing regime.
The listing regime can be strengthened through following changes:
Compulsory electronic filing by companies
this would enable faster dissemination of information by the Exchanges through its website
easier onward dissemination to the wire agencies so that the information reaches a wider
audience.
Regulatory powers to prosecute promoters in case of defaulting companies to vest with the
Exchange.
Common Listing procedure so that there is uniformity in the compliance by companies for
listing of securities.
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