Securities and Exchange Board of India (SEBI)
SR. EXECUTIVE DIRECTOR
December 03, 1993
The President/Executive Director
Hyderabad/Madhya Pradesh/Bangalore/Cochin/Uttar Pradesh/
National Stock Exchanges and OTC Exchange of India
Know your client
SEBI had circulated certain proposals for introducing reforms in the primary market in the form of a Consultative paper No. VII on July 05, 1993. In the light of the comments and suggestions received from various persons concerned with the capital market, SEBI has issued Clarifications No. VII and VIII, to amplify the earlier guidelines and clarifications. These Clarifications were circulated to stock exchanges also for their information.
Some of the provisions in the Clarifications VII and VIII require specific attention of the Stock Exchanges. These have been summarised below for necessary action on your part:
1. Disclosures on market prices for listed companies
The issuers are now required to disclose in the offer document the number of shares traded on the day(s) when the high and low prices were recorded in the relevant stock exchange during the period for which the stock market data is being provided. The stock exchanges may give such details as may be required by the issuers in this regard to enable them to make adequate disclosures.
2. Mandatory collection centres.
By Clarification No. VIII dated October 11, 1993, the number of mandatory collection centres for public issues have been specified as 30 which should include invariably the places where stock exchanges have been established. This may be noted by the stock exchanges.
3. Minimum number of share applications and application money.
By the same Clarification, certain important changes have been brought about in the minimum number of shares for which application is to be made etc. The stock exchanges may make such changes as may be necessitated in the listing requirement pursuant to these modifications given below:
i. In case of public issue at par, minimum number of shares for which application is to be made should be fixed at 500 shares of the face value of Rs. 10/- each.
ii. Where the issue is at a premium or comprises of debentures whether convertible or non-convertible the amount payable in all in respect of each instrument (i.e. on application, allotment and calls) by each applicant shall not be less than Rs. 5,000/- irrespective of the size of the premium subject to applications being for a multiple of tradable lots
iii. The successful applicants will be issued shares certificates/instruments for eligible number of shares/instruments in tradable lots e.g. in case of shares of face value of Rs. 10/- each, the tradable lots shall be 100 shares.
iv. The minimum application moneys to be paid shall not be less than 25% of the issue price. The minimum number of instruments for which an application has to be made shall in any case be not less than the marketable lot.
4. Basis of allotment on oversubscription
One more area in which substantial change has been brought about is the basis on which allotment is to be made in case of oversubscribed public issues. The proposed system of deciding the basis of allotment on proportionate basis is markedly different from the earlier system of giving more weightage to applicants in the lower category and is intended to speed up the allotment procedure and reduce the incentive for making multiple applications. The procedure to be followed for deciding the basis of allotment on proportionate basis is given in Annexure-A. The Stock Exchanges may ensure that the new procedure is followed for proportionate allotment.
Changes if any required in the listing requirements pursuant to the above may also be made of by the stock exchanges.
5. Restriction on capital issues.
Clarification VIII provides that in cases where the issuer has withdrawn the rights issue after announcing the record date, the regional stock exchange shall not permit the issuer company to make application for listing of any securities of the company for a minimum period of 12 months from the record date. This may be noted by the stock exchanges for necessary compliance.
6. Association of public representatives in the allotment process
In cases of public issues which are oversubscribed, SEBI has been receiving complaints relating to the non inclusion of applications with Stock Invest among the list of eligible applicants, unfair basis of allotment, undesirable practices while drawing of lots and manipulation of the allotment procedure. In order to ensure a fair opportunity to very investor and to curb such unhealthy practices, it has been decided by SEBI to associate a Public Representative with the process of issue allotment and drawal of lots in case of oversubscribed issues and for the purpose, SEBI has approved Resource Personnel at various centres. The public representatives so appointed by SEBI shall accompany the lead managers. The Stock Exchanges should give due recognition and co-operation to the public representatives when they visit the stock exchanges for this work. No separate communication from SEBI for each issue will be addressed to stock exchanges.
In addition to the public representatives, an official of SEBI may also at times accompany the public representative. Such SEBI officials should be extended utmost co-operation.
Please acknowledge receipt of this circular.
C. B. BHAVE
SR. EXECUTIVE DIRECTOR
Encl: as above
Basis of Allotment on Oversubscription
The allotment shall be subject to allotment in marketable lots, on a proportionate basis as explained below:
a. Applicants will be categorised according to the number of securities applied for.
b. The total number of securities to be allotted to each category as a whole shall be arrived at on a proportionate basis i.e. the total number of securities applied for in that category (number of applicants in the category x number of securities applied for ) multiplied by the inverse of the oversubscription ration as illustrated below:
Total number of applicants in category of 100s – 1,500
Total number of securities applied for – 1,50,000
Number of times oversubscribed – 3
Proportionate allotment to category – 1,50,000 x 1/3 = 50,000
c. Number of the securities to be allotted to the successful allottees will be arrived at on a proportionate basis i.e. total number of securities applied for by each applicant in that category multiplied by the inverse of the oversubscription ration. (Please see Annexure).
Number of securities applied for by each applicant 100Number of times oversubscribed – 3
Proportionate allotment to each
successful applicant – 100 x 1/3=33
(to be rounded off to 100)
(Please see clause`d’ below)
d. All the application s where the proportionate allotment works out to less than 100 securities per applicant (say for example which may arise in issues of shares with a premium of Rs. 40/- per share) the allotment shall be made as follows:-
i. Each successful applicant shall be allotted a minimum of 100 securities; andii. The successful applicants out of the total applicants for that category shall be determined by drawal of lots in such a manner that the total number of securities allotted in that category is equal to the number of securities worked out as per (b) above.
e. If the proportionate allotment to an applicant works out to a number that is more than 100 but is not a multiple of 100 (which is the marketable lot), the number in excess of the multiple of 100 would be rounded off to the higher multiple of 100 if that number is 50 or higher. If that number is lower than 50, it would be rounded off to the lower multiple of 100. (As an illustration, if the proportionate allotment works out to 250, the applicant would be allotted 300 securities. If however the proportionate allotment works out to 240, the applicant would be allotted 200 securities).
All applicants in such categories would be allotted securities arrived at after such rounding off.
f. If the securities allocate on a proportionate basis to any category is more than the securities allotted to the applicants in that category, the balance available securities for allotment shall be first adjusted against any other category, where the allocated securities are not sufficient for proportionate allotment to the successful applicants in that category. The balance securities if any, remaining after such adjustment will be added to the category comprising of applicants applying for minimum number of securities.
By way of illustration a reference may be made to category no. 5 in the Annexure i.e. the applicants applying for 500 securities. These applicants are entitled on proportionate basis to be allotted 40,000 securities at 200 securities per applicant. However, the number of securities allocated to that category on proportionate basis is only 33,300. The deficit of 6,700 securities will be taken from the surplus securities, available in category 4. In that category as against total number of 30,000 securities to be allotted, the actual securities allocated on proportionate basis is 40,000 securities leaving the surplus of 10,000 securities.
After adding 6,700 securities to the category No. 5, the balance of 3,300 securities will be added back to the category NO. 1 which comprises the applicants applying for minimum number of securities. As a result, the number of successful allottees in that category will increase by 33 from 500 to 533.
The above principle is illustrated in the Annexure.
g. As the process of rounding off to the nearer multiple of 100 may result in the actual allotment being higher than the securities offered, it would be necessary to allow a 10% margin i.e. the final allotment may be higher upto 110% of the size of the actual offering.