SEBI amends listing agreement for debt securities

SEBI vide circular SEBI/IMD/DOF-1/BOND/Cir-5/2009 dated November 26, 2009 has amended the debt listing agreement for debt securities. Earlier in May, 2009 SEBI had issued a simplified listing agreement for debt securities (covered in this blog here). The major changes brought out by this circular (in the debt listing agreement) are as follows.

100% asset cover to be maintained for all issued debt securities

As per the amended listing agreement the issuer should maintain 100% asset cover sufficient to discharge the principal amount at all times for the debt securities issued. Earlier, only companies issuing secured debt securities were under an obligation to maintain 100% security cover as prescribed by SEBI. Now the issuer will have to maintain the prescribed asset cover at all times, even if the issued security is an unsecured debt security.

Submission of certificate on maintenance of security

SEBI has also mandated issuers to submit half yearly certificates regarding maintenance of 100% asset cover, and the time limit of submission in respect of the last half year has been aligned with the option provided for submission of annual audited results at a later date.

Statement on deviations in use of issue proceeds

A new clause has been introduced in the listing agreement whereby issuers should furnish a statement of deviations in use of issue proceeds, if any, to the stock exchange on a half yearly basis. This should also be published in the newspapers simultaneously with the half-yearly financial results. This requirement is adopted from the equity listing agreement prescribed by the SEBI. Under the equity listing agreement the issuer has to furnish this information to the stock exchange on a quarterly basis.

Deposit of 1% of issue proceeds with exchange

Another clause has been introduced which requires issuer to deposit an amount with the Exchange calculated at 1% of the amount of debt securities offered for subscription to the public, as a condition precedent for issuance of debt securities. This requirement is also adopted from the equity listing agreement prescribed by the SEBI.

A copy of the circular is available here.

SEBI notifies SEBI (Stock Brokers and Sub- Brokers) (Amendment) Regulations, 2009

SEBI has notified the SEBI (Stock Brokers and Sub- Brokers) (Amendment) Regulations, 2009 with effect from November 19, 2009. The changes brought about by the amendment regulations are as follows:-

• SEBI has extended the deadline for trading members (in the currency derivative segment) to get their approved user and sales personnel to pass the certification programme prescribed by SEBI. The extended deadline for compliance by members is February 11, 2009.
• A trading or clearing member of any derivatives segment (other than currency derivative segment), who has been allowed by SEBI to trade or clear in the currency derivatives segment, should also pay the fees prescribed by SEBI.

A copy of the regulations is available here.

Stock Exchanges free to set expiry date for F&O

SEBI vide Circular SEBI/DNPD/Cir-48/2009 dated November 13, 2009 has decided to allow flexibility to the Stock Exchanges to set the expiry date / day for equity derivative contracts. SEBI has advised stock exchanges to ensure that there is no change in the contract specifications or the risk management framework, while doing so.

Currently equity derivative contracts expire on the last Thursday of every month or a day earlier if the last Thursday is a holiday.

A copy of the circular is available here.

SEBI notifies SEBI (Substantial Acquisition of Shares and Takeovers) (Third Amendment) Regulations, 2009

SEBI has notified the SEBI (Substantial Acquisition of Shares and Takeovers) (Third Amendment) Regulations, 2009. The provisions of these amendment regulations came to force on November 6, 2009. This gives effect to the decisions taken by the SEBI Board on September 22, 2009 (covered in this blog here). The major changes brought about by these amendment regulations are the following.

ADR and GDR under the purview of takeover regulations
SEBI has amended regulation 3(2) of the Takeover regulations in relation to the acquisition of Global Depository Receipts (GDR) or American Depository Receipts (ADR). Now acquisition of GDRs and ADRs would come under the purview of takeover code if the holder: -

• Become entitled to exercise voting rights, in any manner whatsoever, on the underlying shares; or
• Exchange such depository receipts with the underlying shares carrying voting rights.

Clarity in ‘creeping acquisition’ provision
SEBI has amended regulation 11 of takeover code by inserting the following lines ‘with post acquisition shareholding or voting rights not exceeding fifty five per cent’ and the amended regulation reads as follows: -

“11. (1) No acquirer who, together with persons acting in concert with him, has acquired, in accordance with the provisions of law, 15 per cent or more but less than fifty five per cent (55%) of the shares or voting rights in a company, shall acquire, either by himself or through or with persons acting in concert with him, additional shares or voting rights entitling him to exercise more than 5% of the voting rights, with post acquisition shareholding or voting rights not exceeding fifty five per cent in any financial year ending on 31st March unless such acquirer makes a public announcement to acquire shares in accordance with the regulations”. It means that an eligible acquirer can acquire upto 5% in any financial year without making a public announcement, provided the post acquisition shareholding or voting rights does not exceed 55% in any financial year ending on 31st March.

A copy of the gazette notification is available here.

No eligibility norms for SME exchange listed companies, pure auction in follow-on public offers and fewer requirements for fast track issues

SEBI vide press release PR No.344/2009 dated November 9, 2009 has announced the decisions taken by SEBI Board in its meeting held on the same day. The key decisions are the following: -

SME Exchange/ Platform
SEBI has decided that companies listed on the SME exchanges would be exempted from the eligibility norms applicable for IPOs and FPOs prescribed in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 (ICDR). The norms prescribed by SEBI are as follows: -

• In order to have informed, financially sound and well-researched investors with a certain risk taking ability, a minimum IPO application size of Rs. 1 lakh would be prescribed.
  The minimum trading lot would be Rs. 1 lakh. An upper limit of Rs. 25 crore paid-up capital would be prescribed for a company to be listed on the SME platform/exchange and a minimum paid-up capital of Rs. 10 crore would be prescribed for listing on the main boards of the NSE and the BSE.


• If the follow on offer/rights issue results in triggering of the limit of Rs. 25 crore, then the company would have to migrate to the main board.


• The offer document will have to be filed with SEBI and the exchange. No observations would be issued by SEBI on the offer documents filed by the Merchant Bankers (MBs).


• The MB to the issue will bear the responsibility for market making for a minimum period of three years. MBs would be allowed to do market making along with a disclosed nominated investor (like PE, VC, HNI and QIB). Under this arrangement, all the stock being bought and sold as part of market making will ultimately get transferred to the disclosed nominated investor with whom the Merchant Banker has a contractual agreement. Merchant Banker would have to disclose their intention of this arrangement and have it approved by stock exchanges where the issuer SME is listed.

QIB status to insurance funds set up by army forces
SEBI Board decided to accord QIB (Qualified Institutional Buyer) status to insurance funds set up by armed forces such as Army Group Insurance Fund.

Reservation to employees in Public Issues
Currently the ICDR regulations permit reservation upto 10% of issue size to employees in public issues. However, there is no ceiling on number of shares that could be allotted. The Board decided to put a ceiling of Rs.1 lakh on the value of allotment that can be made to an employee under employee reservation category and to permit reservation upto 5% of the post issued capital instead of 10% of issue size.

Voluntary adoption of IFRS by listed entities having subsidiaries
The board decided to provide an option to all listed entities with subsidiaries to submit their consolidated financial statements as per the International Financial Reporting Standards (IFRS).

Introduction of pure auction as an additional book building mechanism
SEBI decided to introduce a new form of book-building in follow-on public offers for qualified institutional buyers. Under the new method, qualified institutional buyers will be free to bid for shares at any price above the floor price. On the other hand, retail investors will get shares only at the floor price.

Requirements for Fast Track Issues
In order to enable well established and compliant listed companies to access Indian primary market in a time effective manner through follow-on public offerings and rights issues, SEBI introduced the concept of Fast Track Issues (FTIs) in November 2007. SEBI Board on a review decided to relax certain requirements of FTIs such as reducing the average market capitalization of public shareholding of the issuer to five thousand crore rupees from ten thousand crore rupees, pegging the annualized trading turnover to free float for companies whose public shareholding is less than 15 percent of the issued capital. The Board also decided that incase the clause relating to composition of Board of Directors has not been complied with in one or more quarters, it need not be deemed as non compliance, provided the company is in compliance in this regard at the time of filing the offer document with stock exchange/ ROC and adequate disclosures are made in the offer document in this respect.

A copy of the press release is available here.

SEBI allows market access to clients through authorised persons

SEBI vide Circular MIRSD/ DR-1/ Cir- 16 /09 dated November 06, 2009 has decided to allow SEBI registered stock brokers (including trading members) of stock exchanges to provide access to clients through authorised persons. This decision by the regulator was based on the recommendations made by the Secondary Market Advisory Committee of SEBI and discussions with major stock exchanges. It aims at expanding the reach of the markets for exchange traded products.

‘Authorised Persons’ under the SEBI framework

Any person (individual, partnership firm, LLP or body corporate) subject to the eligibilty criteria specifed by the SEBI can be appointed by a stock broker as an authorised person. A stock broker can appoint one or more authorised person(s) after obtaining specific prior approval from the stock exchange concerned for each such person. The approval as well as the appointment shall be for specific segment of the exchange. SEBI also clearly states that the stockbroker will be responsible for all acts of omission and commission of the authorised person. The authorised person should have the necessary infrastructure such as adequate office space, the necessary equipment and manpower to effectively discharge the activities on behalf of the stock broker.

‘Sub-Broker’ and ‘Authorised Persons’ compared

A sub-broker of the main broker has to get registered with SEBI, while the authorised person appointed by the stockbroker has to just get a prior approval of the stock exchange to provide trading access to the clients. This provision would cut for brokers to enter the broking business as, unlike sub-brokers, authorised persons would only need approval of the stock exchange and would not have to wait for SEBI approval. It takes a sub-broker between four weeks and two months to get registered with SEBI, said a compliance officer with a broking firm.

A copy of the Circular is available here.

Discussion Paper on guidelines for execution of Power of Attorney by clients favoring Stock Brokers/Depository

SEBI has put out on its website a discussion paper on the guidelines for incorporating conditions/clauses in the Power of Attorney (PoA) given by clients to their Stock Brokers and/or Depository Participants in the context of possible risks for the clients in this regard. The proposed guidelines for execution of PoA by clients favoring Stock Brokers/Depository will be open for comments from the public till November 30, 2009.

It should be noted in this context that the misuse of client’s funds by brokers are troubling the regulators in India as well as worldwide. Earlier this year, NSDL (the largest depository in India)made ‘SMS alerts’ (alerts sent by way of SMS from the depository to the client whenever a debit or credit happens in the account of the client) mandatory for all accounts operated through a PoA. This was aimed at preventing the broker from making unauthorized credits or debits from the client’s account. As a part of its efforts to create awareness among the investors, National Stock Exchange (NSE) also started an education series on the importance of Power of Attorney, last month. These advertisements appeared in major business newspapers.

A copy of the Discussion paper is available here.