SEBI Panel Suggests Abolishing Security Deposit Requirement In Public Issues

An expert committee formed by Securities and Exchange Board of India on Friday suggested to abolish the requirement of a mandatory security deposit with the exchanges before a public issue, a move that could make it easier for companies to access the primary market.

Under the current rule, any company that is looking to launch a public or rights issue of equity shares has to deposit with the stock exchanges an amount equal to 1% of the issue size. The deposit is returned to the company after the public issue.

In the consultation paper issued by SEBI, the committee suggested that the requirement of 1% security deposit for public or rights issues may be done away with.

Explaining the rationale behind the move, the committee said that the requirement of 1% 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 or rights issues such as application through Application Supported by Blocked Amount UPI mode of payment, mandatory allotment in demat among others, the concerns relating to post-issue investor complaints regarding refund of application money, non-dispatch of physical certificates does notarise, it added.

Going by the data, the average number of complaints per IPO has reduced post-implementation of T+3 listing in IPOs. Also, it has been observed that a majority of complaints are regarding the delay in unblocking of ASBA funds for which Sebi already prescribed a mechanism to deal with such complaints.

"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," it added.

This is in addition to the recommendations made by the committee in January, whereby it suggested allowing flexibility to extend bid closing dates due to force majeure events like a bank strike.

"In order to provide ease of doing business and to provide greater flexibility, the offer for sale size can be based on either the estimated issue size (in Rupee value) or the number of shares, as disclosed in the DRHP, and not on both criteria," the committee had suggested.

The SEBI has sought public comments on the recommendation till February 9.

Besides, it has extended the timeline for submission of comments on the consultation paper issued in January to Feb. 9. Earlier, the deadline was Feb. 1.