Maintenance of Security Deposit by Companies offering securities

Clause 42 of the Listing Agreement requires that every company proposing to issue new securities should deposit before the stock exchange, an amount calculated at the rate of 1% of the amount of securities offered for subscription. This should be done before the opening of subscription list. 50 per cent of the amount can be in cash and the rest as bank guarantees. The objective is to ensure compliance with all legal requirements of issue. This deposit can be released by the concerned stock exchange only after obtaining a ‘NOC’ from SEBI.
The regulator found out that the bank guarantees so kept with the stock exchanges have expired and they have not taken steps to revive the bank guarantees so expired. This resulted in the compromise “of an important mechanism available for redressal of investor grievances”.
In this context the regulator on 5th December, 2008 has asked stock exchanges to comply with the directions listed below: -
• To recoup any shortfall caused by expiry of bank guarantee.
• To have a system in place, to track bank guarantees furnished by companies.
• To invoke such bank guarantees before it expires, if any issuer company fails to satisfy the shortfall in the deposit.