Introduction: SEBI, on January 11, 2024, released a Consultation Paper discussing the ‘Interim Recommendations of the Expert Committee for facilitating ease of doing business and harmonization of the provisions of ICDR and LODR Regulations.’ This article provides insights into the additional recommendation made by the Expert Committee regarding the 1% security deposit in public/rights issues under the ICDR Regulations.

Detailed Analysis:

1. Background: SEBI sought public feedback on the interim recommendations outlined in the Consultation Paper. As part of the ongoing process, an additional recommendation related to the ICDR Regulations, specifically focusing on the 1% security deposit for public/rights issues, was introduced.

2. Existing Provisions: The ICDR Regulations currently mandate issuers to deposit one per cent. of the issue size with the designated stock exchange for public subscription. This security deposit, refundable or forfeitable as per Board specifications, addresses investor-related concerns during the transaction.

3. Stakeholder Suggestions: Stakeholders proposed the elimination of the one per cent. security deposit requirement for public/rights issues, asserting that recent market reforms and practices have mitigated concerns related to investor complaints.

4. Recommendation and Rationale: Considering the advancements in market practices, such as ASBA applications, UPI payments, and mandatory demat allotments, the need for the one per cent. security deposit was reevaluated. The Expert Committee recommends removing this requirement, emphasizing the reduction in post-issue investor complaints.

The rationale highlights that reforms like T+3 listing and SEBI’s circular addressing delays in unblocking ASBA funds have significantly reduced investor complaints. The removal of the security deposit requirement is seen as a move towards facilitating ease of doing business for issuers in the primary market.

5. Suggested Text of the Amendment: The recommended amendment suggests deleting Regulation 38, 80, 135, 197, and 259 of the ICDR Regulations to relieve issuers from the associated costs.

Conclusion: SEBI’s Expert Committee’s additional recommendation regarding the 1% security deposit in public/rights issues under the ICDR Regulations reflects a proactive approach to align regulations with evolving market dynamics. Stakeholders are invited to share their comments and suggestions by February 9, 2024, contributing to a collaborative regulatory framework that fosters ease of doing business in the Indian securities market.

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Securities and Exchange Board of India

INTERIM RECOMMENDATIONS OF THE EXPERT COMMITTEE FOR FACILITATING EASE OF DOING BUSINESS AND HARMONIZATION OF THE PROVISIONS OF ICDR AND LODR REGULATIONS

February 02, 2024|  Reports : Reports for Public Comments

CONSULTATION PAPER

1. SEBI had issued a Consultation Paper dated January 11, 2024 on ‘Interim Recommendations of the Expert Committee for facilitating ease of doing business and harmonization of the provisions of the ICDR and LODR Regulations’ seeking public feedback on the said recommendations.

ADDITIONAL RECOMMENDATION ON EASE OF DOING BUSINESS UNDER THE ICDR REGULATIONS

2. The Expert Committee has given an additional recommendation on ease of doing business under the ICDR Regulations on ‘Review of requirement of 1% security deposit in public / rights issue of equity shares as prescribed under the ICDR Regulations’. The said recommendation is placed as Annexure to this Addendum.

PUBLIC COMMENTS

3. Public Comments are solicited on the additional recommendation of the Expert Committee (refer Sl. No. 10 of the prescribed format). The timeline for submission of comments on the Consultation Paper and the Addendum is extended to February 9, 2024. The comments / suggestions along with rationale should be sent only by email to consultationcfd@sebi.gov.in in the prescribed format.

4. While sending the email, kindly mention the subject as “Comments on the interim recommendations of the Expert Committee for facilitating ease of doing business and harmonization of the provisions of ICDR and LODR Regulations.”

Annexure

ADDITIONAL RECOMMENDATION ON EASE OF DOING BUSINESS UNDER THE ICDR REGULATIONS

1. Review of requirement of 1% security deposit in public/rights issue of equity shares as prescribed under the ICDR Regulations

1.1. Existing provisions: Currently, in terms of the ICDR Regulations (Regulation 38, 80,135,197 and 259 of ICDR Regulations), an issuer is required to deposit with the designated stock exchange, an amount calculated at the rate of one per cent. of the issue size available for subscription to the public in the manner specified by Board and/or stock exchange(s).

This security deposit amount is refundable or forfeitable in the manner specified by the Board.

1.2. Suggestion from stakeholders: It was suggested that the requirement of one per cent. security deposit for public/rights issues may be done away with.

1.3. Recommendation and rationale: The requirement of one per cent. security deposit was put in place for public/rights issues so that an issuer resolves investor complaints relating to the transaction such as for refund of application money, allotment of securities and dispatch of certificates. However, considering various reforms and present framework for public/rights issue such as application through ASBA, UPI mode of payment, mandatory allotment in demat etc., the concerns relating to post-issue investor complaints regarding refund of application money, non-dispatch of physical certificates does not arise.

Further, from the data it is observed that average number of complaints per IPO have reduced post implementation of T+3 listing in IPOs. Also, it is observed that majority of complaints are regarding delay in unblocking of ASBA funds by SCSBs, for which SEBI vide circular dated March 16, 2021 has already prescribed a mechanism to deal with such complaints of delay in unblocking of application amounts under ASBA.

Therefore, since the requirement of one per cent. security deposit imposes cost on the part of issuers, the removal of the requirement will result in ease of doing business for issuers accessing the primary market.

1.4. Suggested text of the amendment:  Regulation 38, 80, 135, 197 and 259 of ICDR Regulations to be deleted.

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