SEBI Proposes Changes To Buyback Rules And Merchant Bankers Norms

To facilitate ease of doing business, capital markets regulator SEBI on Tuesday proposed tweaking norms governing buyback of shares, merchant bankers and bankers to an issue. The proposals are based on recommendations given by a committee chaired by SEBI's former Whole Time Member S K Mohanty. The committee was formed by the markets regulator to review the merchant bankers rule, bankers to an issue and buyback norms from the point of view of facilitating ease of doing business, SEBI said in its consultation paper.

The Securities and Exchange Board of India has sought comments from the public till June 11 on the proposals.

With regards to buyback norms, the committee has suggested allowing conversion of ESOPs or convertible instruments if the exercise or conversion date falls within the buyback period. Also, it has been suggested to disclose details of outstanding ESOPs and convertible instruments in the public announcement.

The current rules prohibit issuing any shares or securities, including bonus shares, until the buyback period ends.

On the manner of computation ration, the committee has suggested that if any promoter or member of the promoter group declares upfront they will not participate in the buyback, their shares should not be considered in the entitlement ratio calculation.

This increases the entitlement for remaining shareholders. At present, there is no specific method for calculating the entitlement ratio.

In respect of reference date for opening buyback offer via stock exchange, it has been suggested that buyback offer should open within four working days from the public announcement date. At present, the offer opens within four working days from the record date.

On disclosures in the letter of offer, it has been suggested to include the entitlement ratio for small and general shareholders on the cover page and also provide a link in the letter of offer for shareholders to check their buyback entitlement on the registrar's website.

With regards to merchant banker rule, the committee has suggested that the existing requirement to submit statement of responsibility to Sebi at least one month before the opening of the issue can be removed as such responsibilities are already disclosed in the offer document under the ICDR Regulations.

In addition, it has been proposed to align underwriting obligations with the current listing framework, requiring subscription prior to the finalization of the basis of allotment instead of current rule that requires merchant bankers acting as underwriters to subscribe to securities within 45 days of receiving intimation.

Further, it has been suggested to amend the definition to include securities premium.

In addition to existing professional qualification requirements, it has been proposed to allow qualifications from recognized foreign universities or institutions for the applicant. The current rule requires a minimum of two employees with experience in merchant banking.

Under the conditions set out for registration of a merchant banker, it has been proposed to eliminate the requirement to inform SEBI about investors' complaints. Also, it has been suggested to replace 'immediately' with 'within seven working days' for informing Sebi about changes.

Also, it has been recommended to issue digitally signed e-certificates to merchant bankers.

In respect to norms governing Bankers to an Issue, the committee has recommended to update the definition to clarify that BTIs can also act in connection with open offers, buybacks, and other transactions as required by SEBI regulations.

Also, it suggested introducing a provision stating that no entity can act as a BTI without a certificate of registration from SEBI.