RECENT CHANGES IN THE REGULATORY FRAME WORK IN … Regulatory... · 2017. 4. 11. · Amendment dated May 25,2016 SEBI (LODR) (Amendment) Regulations,2016 (cont…) 4. The management

RECENT CHANGES IN THE REGULATORY

FRAME WORK IN CAPITAL MARKET AND

AMMENDMENTS THERETO

&

SOME CONCEPTS ON BOOK BUILDING

SEMINAR AT INDORE

ON 25TH MARCH 2017

PRESENTER CS B NARASIMHAN1

SEBI Listing Regulations

– A quick overview of Major

Amendments

2

PREAMBLE Regulations introduced in exercise of powers under the SEBI Act read

with Section 31 of SCRA, 1956.

Listing agreement – its deficiencies - Need to revamp was required

Role of ICSI in 2006-2007………

Need for stringent Regulations.

Streamlining and consolidating existing listing agreements for different

requirements.

Structured such as to provide ease of reference for consolidating into

one single document across various types of listed securities.

3

Commencement of Listing Regulations

Notified on September 02, 2015

Came into force 90 days thereafter i.e. December

01, 2015

Listing Regulations replaced the Listing

Agreement

Two provisions came into force w.e.f Sept 02, 2015

- 23(4) Ordinary Resolution for RPT

-31(A) Reclassification of promoters

Regulations have greater statutory force

4

Commencement of Listing Regulations

Consolidated & Streamlined the provisions of the Listing Agreement

• For different segments such as Equity, Debt, Preferenceshares, Mutual Funds etc.

Listing regulations have been sub-divided into two parts viz;

• substantive provisions incorporated in the main body of theregulations and;

• Procedural requirements in the form of schedules to theregulations.

• Regulations are divided into XII chapters and IX schedules

5

Main Features

Usage of Listed Entity

• In Listing Regulations 2015, the term ‘listed entity’ isused instead of ‘listed company’

• Some listed entities may or may not be the companiesbut are body corporates

Ease of reference

• Related provisions were aligned and provided at acommon place.

• Listing Regulations have been aligned with the provisionsof the Companies Act, 2013

6

FRAMEWORK

Applicable for all securities depending

on the nature of securities like

Specified securities, main Board or

SME or ITP, IDR, MF etc

7

Risk Policy

Preservation of documents

Policy on Board diversity

Policy for determining “material subsidiaries”

Policy on materiality of RPT

Policy on dealing with RPT

Whistle blower policy

Policy relating to remuneration of Directors, KMP and senior

employees8

POLICIES TO BE FRAMED

COMMITTEES UNDER LODR

AUDIT COMMITTEE (REG 18)….. ROLE DEFINED PART C

SCHEDULE II

NOMINATION AND REMUNERATION COMMITTEE (REG 19)….

ROLE REF PART D SCHEDULE II

STAKEHOLDER RELATIONSHIP COMMITTEE (REG 20)….

ROLE REF PART D SCHEDULE II

RISK MANAGEMENT COMMITTEE (REG 21) ROLE DEFINED BY

BOARD……. CAN INCLUDE SENIOR EXECUTIVES

9

Adherence to applicable Accounting standards and

requirements of financial disclosure

Accounting standards to be followed in letter and spirit

Ensure independence of Audit

No misrepresentation/misleading information

Adequacy and timeliness of information

10

MAJOR PRINCIPLES GOVERNING

DISCLOSURES AND OBLIGATIONS [REG. 4]

MAJOR PRINCIPLES GOVERNING DISCLOSURES

AND OBLIGATIONS [REG. 4]

Accuracy, simplicity and explicitness of information

Compliance of all laws relating to Securities and other

Guidelines issued by SEBI

Disclosure should consider spirit of all stakeholders,

keeping in view its obligations in letter and spirit.

Relevance of information

Stakeholders to be in a position to assess current status of

the company through filings made.

Regulations recognizes the rights of stakeholders

11

Directs the company to discharge its obligations

such that they can exercise their rights.

Board and its members to ensure:

- disclosure of information

- disclose interest in material related party

transactions

-Conduct themselves in line with expectation of

operational transparency of stakeholders.

12

MAJOR PRINCIPLES GOVERNING

DISCLOSURES AND OBLIGATIONS [REG. 4]

Regulation 9 – Policy for Preservation of Documents

Documents to be classified into two categories:

- Permanent Maintenance

- Preservation for periods mandated under laws

Policy to be approved by Board and hosted on website

Board composition to be in line with Regulation 1713

SPECIFIC OBLIGATIONS OF THE COMPANY

Discharge by Board committees of responsibilities as

mandated under Regulations 18, 19, 20 and 21.

Determination of Policy on Dividend Distribution [ Vide

Circular dated July 08, 2016].Should be made part of

Regulations.

Maintenance of functional website providing information

as required under Reg. 46(2)14

SPECIFIC OBLIGATIONS OF THE COMPANY

Amendment dated Dec 22,2015

SEBI (LODR) (Amendment) Regulations,2015

Before amendment Regulation 34(2)(f) required top hundred listed

entities based on market capitalization (calculated as on March 31 of

every financial year) to compulsorily and other than top hundred

listed entities to voluntarily include BRR in their

Annual Report.

Subsequent to amendment in SEBI (Listing Obligations and Disclosure

Requirements) Regulation 2015 notified on December 22, 2015, the

requirement of mandatory reporting of BRR in Annual Report has been

raised from hundred to five hundred listed

entities which was effective from April 01, 2016.

15

Amendment dated May 25,2016


With these amendments SEBI had put in place a mechanism to

review the audit qualifications contained in the audit reports

of the listed entities.

Form A/ Form B dispensed with

Subsequent to amendment in SEBI (Listing Obligations and

Disclosure Requirements) Regulation 2016 notified on May 25, 2016

[which was effective from April 01, 2016], the listed Companies

were now required to disseminate the cumulative impact

of all the audit qualifications in a separate format,

simultaneously, while submitting the annual audited

financial results to the stock exchanges.16

Amendment dated May 25,2016SEBI (LODR) (Amendment) Regulations,2016 (cont…)

Overall Major gist of the Notification:

1. The requirements of filing Form A/ Form B along with the annualfinancial results has been dispensed with.

2. In case of Audit Reports with modified opinions (i.e. Qualified AuditReports), a Statement on Impact of Audit Qualifications is needed to besubmitted.

3. Where the impact of the audit qualification is not quantified by theauditor, the management shall make an estimate. In case themanagement is unable to make an estimate, it shall provide reasons forthe same. In both the scenarios, the auditor shall review and give thecomments.

17

Amendment dated May 25,2016

SEBI (LODR) (Amendment) Regulations,2016 (cont…)

4. The management of the listed entity shall have the option to explain its views on the audit qualifications.

5. Further, the said Statement is also needed to be given in the Company’s Annual Reports.

6. Further, in case of audit reports with unmodified opinion(s), the listed entity shall furnish a declaration to that effect to the Stock Exchange(s) while publishing the annual audited financial results.

7. Schedule VIII of the LODR Regulations has been deleted.

8. These requirements are applicable for both listed equity shares and also listed NCDs/ NCRPSs.

18

Amendment dated July 08,2016SEBI (LODR) (Second Amendment) Regulations,2016

Dividend Distribution Policy shall be disclosed in the Annual

Reports and on the websites of top 500 listed entities;

Dividend Distribution Policy shall include the following parameters-

the circumstances under which the shareholders of the listed entities may or

may not expect dividend;

the financial parameters that shall be considered while declaring dividend;

internal and external factors that shall be considered for declaration of

dividend;

policy as to how the retained earnings shall be utilized;

19

Amendment dated July 08,2016

SEBI (LODR) (Second Amendment) Regulations,2016

parameters that shall be adopted with regard to various classes of shares;

Where the listed entity proposes to declare dividend on the basis of

parameters in addition to aforementioned or proposes to change

such additional parameters or the dividend distribution policy

contained in any of the parameters, listed entity shall disclose such

changes along with the rationale for the same in its Annual Report

and on its Website;

The listed entities other than top 500 listed entities may disclose

their dividend distribution policies on a voluntary basis in their

Annual Reports and on their websites.

20

Amendment dated January 04,2017SEBI (LODR) (Third Amendment) Regulations,2016

The title is substituted with “Obligations with respect to employees including

senior management, key managerial persons, directors and promoters”.

A Fall out of the events which took place in Infosys…….CFO given

heavy compensation…..

New sub-regulation 26(6) was inserted, which stated that no

employee including KMP or director or promoter of a listed entity

shall enter into any agreement for compensation or profit sharing in

connection with dealings in the securities of such listed entity,

directly or indirectly (for himself or on behalf of any other person), with

any shareholder or any other third party, unless prior approval for the

same has been obtained from the Board of Directors & public

shareholders by way of an ordinary resolution.21

Amendment dated January 04,2017

SEBI (LODR) (Third Amendment) Regulations,2016

Further, all such agreement entered during the preceding 3

years from this date of publication, shall be disclosed to

Stock Exchange and subsisting agreement to be placed

before forthcoming Board Meeting & General Meeting for

approval. Also, all interested persons involved in

transaction covered in said agreement shall be abstain from

voting in General Meeting.

22

Amendment dated February 15,2017


SEBI vide Notification dated 15th February, 2017 notified Securities andExchange Board of India (Listing Obligations and Disclosure Requirements)(Amendment) Regulations, 2017 which came into force from the date ofpublication in Official Gazette. This hereby undertakes following amendment

in the Regulation 37 which is for Draft Scheme of Arrangement &Scheme of Arrangement where prior Observation Letter or No-objection letter is to be obtained from Stock exchange beforefiling with Court or Tribunal:

New sub-regulation 37(6) was inserted which stated that nothing contained in

this regulation shall apply to draft schemes which is solely for merger ofa wholly owned subsidiary with its holding company.However, said draft schemes shall be filed with the stock exchanges for thepurpose of disclosures.

23

Action in case of any default

The listed entity or any other person who contravenes any provisions of these

regulations, shall be liable to action under the securities laws

In addition, would be liable for the following actions by the respective stock

exchanges

Imposition of fines

Suspension of trading

Freezing of promoter / promoter group holding of designated securities

Any other action prescribed by the Board

Revocation of suspense or freeze of securities shall be as specified in

circulars or guidance notes issued by the Board

24

Board Evaluation Process

…….Guidance Note on Board Evaluation

SEBI Circular dated 5th Jan 2017

Legislative FrameworkThe Companies Act, 2013 SEBI (LODR), 2015

Chapter IX: Section 134(3)(p) Accounts of Companies

and Rule 8(4)of Company (Accounts) Rules,

2014_Disclosure of Annual Evaluation in Annual

Report.

Chapter II- Disclosure by Listed Entity, Reg.

4(2)(f)(ii)(9)_Role of Board in Annual Evaluation.

Chapter XII- Meeting of Board and its Powers - Section

178(2)_ Role of Nomination and Remuneration

Committee in Annual Evaluation.

Chapter IV- Obligations of Listed Entity, Reg.

17(10)_Evaluation of Independent Directors.

Schedule IV_ Code for Independent Directors. Chapter IV- Obligations of Listed Entity, Reg 25.(3& 4)_

Obligation of Independent Directors.

Secretarial Audit MR-3 mentions about Board Processes

and compliance with LODR and Companies Act 2013

Schedule II-Part D (A) (2, 4 & 5)_Role of NRC in Annual

Evaluation.

Schedule V (C)_Disclosure in Corporate Governance

Report.

GN by SEBISEBI issued Guidance Note on Board Evaluation through circular dated 05

January, 2017 in order to educate the listed entities and their Board of

Directors about various aspects involved in Board Evaluation process and to

improve the overall performance as well as Corporate Governance standards

to benefit all stakeholders.

The Guidance Note covers all major aspects of Board Evaluation including

the following:

Subject of Evaluation

Process of Evaluation, including laying down objective and criteria of evaluation

Feedback on evaluation

Further Action Plan

Disclosure to Stakeholders

Frequency of Board Evaluation

Responsibility of Board Evaluation

Review of entire evaluation process

Summary of SEBI Guidance Note on Board Evaluation

Levels of Evaluation

Board as a Whole

• All the Directorswould be takentogether

Committees of the Board

• Audit Committee,

• NominationRemunerationCommittee,

• CSR Committee,

• StakeholdersRelationshipCommittee

• Any OtherCommittee

Individual Directors & Chairperson

• Chairperson

• CEO

• IndependentDirectors

• Non- IndependentDirectors

Process of Evaluation

Identification of Objectives for evaluation

General Objectives - Objectives specific for all

Board evaluations of the entity.

Specific Objectives - Objectives specific to the

current Board evaluation based on recent events,

new issues of concern etc.

Laying down the Criteria of Evaluation

Indicative Criteria for Board as a whole

Structure of Board

- Competency of Directors

- Experience of Directors

- Mix of Qualifications

- Diversity in Board

- Appointment process to Board.

Board Meetings

- Regularity and frequency

- Logistics

- Agenda- Discussions and Dissent- Recording of Minutes

- Dissemination of Information.

Board Functions

- Roles & Responsibilities

- Strategy, Performance evaluation

- Governance & Compliance

- Stakeholder Value & Responsibility

- Evaluation of Risk

- Corporate culture & values, etc.

Board and Management

- Independence of Management

- Secretarial & Financial Support

- Succession Plan

- Professional Development, etc.

Indicative Criteria's

Committees of the Board 1.Mandate and Composition

2.Committee Effectiveness

3.Committee structure and Meetings

4.Committee Independence

5. Contributions to Board Decisions

Individual Directors & Chairperson 1. Qualifications

2. Experience

3. Knowledge and Competency

4. Fulfilment of functions

5. Team Work & Integrity

6. Initiative

7. Availability and attendance

8. Commitment & Contribution

Additional Criteria for Independent

Directors

1. Independence

2. Independent views and Judgment

Additional Criteria for Chairperson 1.Effectiveness of leadership and ability to steer

Meetings

2.Impartiality

3.Commitment

4.Ability to keep Stakeholder’s interest in mind

Feedback

Orally by Chairperson / external assessor to:

1. Each Member separately

2. To the entire Board

3. To the Committees

A written assessment to every Board, Member,Committee

The Chairperson has a active role to play in providingfeedback to members

Further Action PlanBased on analysis of responses, Board may prepare an action plan on:

Areas of Improvement including training, skill building etc. as may be required for Board Members

List of actions required detailing:

1. Nature of actions

2. Timeline

3. Person responsible for implémentation

4. Resources required etc.

Review of actions within specific time period

Disclosures to Stakeholders

- The manner and criteria of evaluation has to be disclosed toShareholders as required on SEBI LODR and Companies Act,2013

- Company may voluntarily for more transparency provideresults, action plan of evaluation

Frequency of Board Evaluation

- As per SEBI LODR and Companies Act, 2013, the evaluation hasto be done once in a year

- If the Company so desires, may conduct evaluation morefrequently

Responsibility of Evaluation

- The responsibility differs depending on subject of evaluationas per SEBI LODR or Companies Act, 2013

- On a global basis, the primary role of steering the wholeprocess of Board Evaluation and ensuing its effectiveness inimproving the Board efficiency lie on Chairperson

Periodical Review

- Board Evaluation, being a non static process requiresperiodical review for improvement

- The responsibility of such review lies on board of Directors asper SEBI LODR

INDIA’S NEW INSIDER

TRADING REGULATIONS

SEBI (Prohibition of Insider Trading Regulations) 2015

36

New Regulations on Insider Trading, 2015

The SEBI (Prohibition of Insider Trading) Regulations, 2015 were

a much-needed update from the two decades of old 1992

regulations.

Justice N. K. Sodhi Committee’s Report 07 December, 2013

Notified as on 15 January, 2015

Applicable from 15 May, 2015

SEBI has on 24 August, 2015 issued one Guidance Note on

SEBI (Prohibition of Insider Trading) Regulations, 2015.

37

Salient Features of the SEBI (Prohibition

of Insider Trading) Regulations, 2015

The definition of ‘securities’ has been

borrowed from the Securities Contracts

(Regulation) Act, 1956.

[However, for the purpose of this Regulation, ‘units of

a mutual fund’ shall not qualify as ‘securities’.

Therefore, apart from the plain vanilla securities,

more sophisticated instruments including derivatives,

security receipts, any rights or interest in securities,

hybrid instruments will be covered under the

definition of ‘securities’ for the purpose of this

Regulation.38



The Regulations have introduced a definition for a

‘compliance officer’ of the company who shall be

financially literate and is capable of appreciating

requirements for legal and regulatory compliance

under these Regulations. The compliance officer

shall directly report to the Board of the Company

or the head of the organization as the case may

be.

39


of Insider Trading) Regulations, 2015 According to the regulations, an insider is someone who is either

a connected person or is in possession/access to unpublishedprice sensitive information. In this regard, the definition of aconnected person has been expanded and clarified.

[Included within the ambit are persons who don’t occupy a positionin the company, but are involved in a contractual capacity with thecompany and are in touch with the company and its officers. Theyare in a position wherein they are aware of the operations of thecompany. Such a relationship (whether temporary or permanent)must allow (or reasonably expect to allow) access to unpublishedprice sensitive information].

40



The definition of price sensitive information has alsobeen modified.

[The modified definition clearly states that the types ofinformation mentioned therein are merely illustrative, andother types of information may also be included. Amongthe illustrations, ‘changes in the major managerial positionshas also been added].

41



The 2015 regulations have also widened the prohibitions regardingcommunication and procurement of unpublished price sensitive information(UPSI).

[The new regulations states that an insider should not share UPSI which isapplicable not only for a listed company but it is also applicable for acompany that is about to be listed].

Further, they prohibit the insider from allowing others to access UPSI,thereby including indirect methods of sharing information. It is intended tolead to organisations developing practices based on need-to-know basisfor treatment of information in their possession. Inducement andprocurement of UPSI have also been prohibited.

42



The 2015 regulations introduce the concept of Trading Plans. There are

certain persons who are perpetually in possession of UPSI. Such insiders may

prepare a Trading Plan and present it to the Compliance Officer for approval.

Once approved, the insiders can trade in accordance with the plan. This way,

the impact of UPSI is neutralized as the trade was decided/finalized even

before the availability of the UPSI.

Additionally, the 2015 regulations allow sharing of UPSI in cases of due

diligence such as takeovers, mergers, and acquisitions.

[While sharing such information, the parties must enter into a

confidentiality and non-disclosure agreement. Further, the parties shall not

trade in the securities of the company when in possession of such UPSI].

43



The 2015 Regulations explicitly prohibit trading insecurities while in possession of UPSI. However, theregulations provide for certain situations throughwhich the insider can prove his innocence.

[These are – off market transactions wherein, both partiesmake a conscious and informed decision or when no UPSI wascommunicated by the person possessing the information to theperson making the trade or when the trade was in pursuance ofa Trading Plan].

44

Changes with respect to disclosure requirements have also been made.

Disclosure Categories required

to make disclosures

Particulars Time Period

Initial Disclosure to the

Company

(Internal)

− Promoter

− Key Managerial Personnel

− Director

Holding of securities of the company as on date of the

Regulations taking effect.

Within 30 days of Regulations taking

effect.

Initial Disclosure to the

Company (Internal)

Upon appointment as: -

− Promoter

− Key Managerial Personnel

− Director

Holding of securities of the company as on date of

appointment or becoming promoter.

Within 7 days of appointment or

becoming promoter.

Continual Disclosure to be

made to the Company

(Internal)

− Promoter

− Employee

− Director

Number of securities acquired or disposed of in case the value

of securities traded, whether in one day or a series of

transactions over a calendar quarter, aggregates to a traded

value in excess of 10 lakh rupees or such other value as may

be specified.

Within 2 trading days of such

transaction.

Disclosure to be made by the

Company

(Public)

Company required to notify the

stock exchange

− in case the value of securities traded by a promoter,

employee or director, whether in one day or a series of

transactions over a calendar quarter, aggregates to a traded

value in excess of 10 lakh rupees or such other value as may

be specified.

− incremental transaction after the above disclosure to be

made when the transactions effected after the prior

disclosure crosses the monetary threshold of 10 lakh rupees or

such other value as may be specified

Within 2 trading days of receipt of the

disclosure or from becoming aware of

such information.

45

ISSUES FOR CONSIDERATION

Monitoring the trades based on disclosure alone not

sufficient

Monitoring holding through the weekly download from RTA

for Designated persons

Mapping of the PAN across the data base (both for 1st and

joint holder(s)

Intra day trade cannot be tracked

Similarly settlement within the week cannot be tracked

Monitoring of contra position within 6 months

Dealing in Futures and Options (derivatives)

46

Guidance note issued by SEBI on 24th

August 2015

“trading “ means and includes subscribing, buying,

selling, or agreeing to subscribe, buy, sell, deal in any

securities, and trade shall be construed accordingly.

Code of Conduct under schedule B clause 10…

The code of conduct shall specify the period, which in any

event shall not be less than six months, within which a DP

cannot execute a contra trade……

……Exercise of ESOPs shall not be considered to be

“trading”…….. For Example

A sells or purchases before ESOPs can exercise ESOPs

47

Guidance note issued by SEBI on 24th

August 2015 Acquires under ESOPs then sells/ pledges…. Will not be contra

Acquires shares from market, then exercises ESOPs

subsequently sell/pledges will tantamount to Contra trade

Sells shares in the market, then exercises ESOPs subsequently

sell/pledges will not tantamount to Contra trade …. However

cannot purchase further shares

This was a saving grace for large companies which were giving

ESOPs to their employees…….. Meeting with NSE to persuade

SEBI to clarify

48

SEBI ICDR AMMENDMENTS

COVERING LAST 5 YEARS

S.SUDHAKAR VICE-PRESIDENT (CORPORATE SECRETARIAL) RELIANCE INDUSTRIES LIMITED 49

SEBI Registered Market Intermediaries

Market Intermediaries As on 31st March 1998 2011 2014 2015 Up to Jan 2017

Stock Exchanges (Cash) 22 19 20 15 4… Derivatives 3

Brokers (Cash Segment) 9005 10203 9411 6147 3189

Corporate Brokers (Cash ) 2976 4774 4917 3757 2773

Sub-brokers (Cash Segment) 3760 83808 51885 42351 30871

Brokers (Derivative) NA 2111 3051 2990 2665

FII (FPIs) NA 1722 1710 1444 7114

Deemed FPI 6772 1744

Custodians NA 17 19 19 19

Depositories 1 2 2 2 2

Depository Participants 52 805 859 854 865

Merchant Bankers 802 192 197 197 189

Bankers to an Issue 72 55 59 60 63

Venture Capital Funds NA 184 207 201 198

AIF NA NA NA 135 287

Foreign Venture Capital Inv NA 153 192 204 215

RTI and STA 334 73 71 72 73

Portfolio Managers 16 267 212 188 220

Mutual Funds 38 51 50 47 454/11/2017 50

Source SEBI Bulletin

Resource mobilized from Primary markets

Year

Total Category-wise

No. Amount Public Rights

Rs in Crs No. Amount No. Amount

Public Rs Crs Rights Rs Crs

1993-94 1143 24372 773 15449 370 8923

1995-96 1725 20804 1426 14240 299 6564

2003-04 57 23272 35 22265 22 1007

2007-08 124 87029 92 54511 32 32518

2008-09 46 14719 21 2082 25 12637

2009-10 76 57555 47 49236 29 8319

2010-11 91 67609 68 58106 23 9503

2011-12 51 12857 35 10482 16 2375

2014-15 64 9789 46 3039 18 6750

2016 up to Jan 2017 80 27164 73 25767 7 1397


Size wise classification of Issues

Year Total < 5 cr. >5 cr <50 cr >50 cr<100cr > 100 cr.

No. Rs No. Rs No. Rs No. Rs No. Rs

1995-96 1725 20804 1066 3183 593 6177 43 2934 23 8511

2003-04 57 23272 6 16 21 366 5 351 25 22539

2007-08 124 87029 4 16 34 926 25 1669 61 84418

2008-09 46 14720 1 3 22 516 9 1222 14 12978

2009-10 76 57555 1 2 21 620 9 636 45 56298

2010-11 91 67609 1 2 15 466 20 1406 55 65735

2013-14 55 13268 ##14 41 ##27 297 3 222 46 55444

2016 Jan

2017 80 27164 ##20 69 ##35 528 2 125 23 26442


## Majority

on SME

exchange

4/11/2017 53

10TH January 2012

SEBI found Pricing of Issues by BRLM to be very aggressive

Apart from a para being provided in RHP nothing else

Investor can take call before investing……..

Disclosure of performance for past issues handled by BRLM

All Public issues for 3 years from date of listing

20th January 2012

No Circuit filter on Listing for an IPO

Large scale manipulations and artificial rigging in securities Noticed

Several Companies were issued SCN in November 2011

BOOK BUILDING GUIDELINES Some Important Notifications

4/11/2017 54

20th January 2012

Pre Open session Up to 250 Cr and GT 250 Cr

Auction (60 Minutes) 9AM to 10 AM

45 Min order entry modification & Cancellation – 10 min Matching – 5 Min buffer

5% of discovered equilibrium price if discovered or 5% of Issue price if not discovered

Trade on TFT for 10 days

BOOK BUILDING GUIDELINES

Some important notifications

4/11/2017 55

20th January 2012

GT 250 Cr

20% of discovered equilibrium price if discovered or 20% of Issue price if not discovered

On other SE not eligible for Call Auction

5% of NSE/ BSE equilibrium price

Multiple Equilibrium Price the one closer to Issue Price

Or not discovered 5% or 20 % of Issue Price


Other important notifications

4/11/2017 56

Controls in IPO Trading Session

56

Is Equilibrium

price discovered?

5% of equilibrium price

5% of issue price

Issue Size

<= INR 250 cr

Is Equilibrium

price discovered?

20% of equilibrium price

20% of issue price

Issue Size

> INR 250 cr

Normal trading session for IPO scrips on the first day of trading to commence

only on conclusion of Call Auction session

4/11/2017 57

30TH January 2012: Institutional Placement Proceedure

IPP Chapter VIIIA inserted

Approval u/s 81(1A)- In Principle approval of SE-

Managed by MB- offer document to be filed with SEBI / ROC and SE-

Promoter not to have purchased or sold during 12 weeks-

To be kept open for min 1 day max 2 days- demand scheduled to be displayed by SE without disclosing the price.

Pricing and Allocation – Proportionate or price priority or as per criteria mentioned in offer document – 25 % for MF and IC – bids only through ASBA



4/11/2017 58

30TH January 2012

No provision for downward revision

At least 10 allottees and none GT 25 % of the offer size

Seller can withdraw if not fully subscribed

Issue size not more than10% or such lower size to ensure minimum public share holding

If issue over subscribed allotment not more than 10 %

Allottee not to sell for 1 year from date of allotment except on a Stock Exchange



4/11/2017 59

1st February 2012

Offer for sale by Promoters thru’ SE Mechanism

Available for Promoter who have to increase minimum public shareholding in terms of 19(2)(b) and 19 A of SCRA read with clause 40A of LA

Promoter not to have sold or purchased within 12 weeks & also for 12 weeks after

Buyer can be anybody

Size to be 1 % of paid up capital subject to min of 25 crores or where less at least 10% or such % age to achieve min public holding

Announcement one clear trading day prior to offer



4/11/2017 60

1st February 2012 Contd.

Floor Price to be announced or submitted in sealed envelope to SE to be disclosed after closure of offer

Duration 1 day – Collection 100 % of order value

Seller to deposit entire quantity as pay in

25 % for MF and IC and balance for others

No single buyer to be given > 25%

Settlement on T+2



4/11/2017 61

29th August 2012 Board Decision

Rights/ Bonus –Promoter/ Group forgoing their entitlement

Or Any other method for achieving this objective – clearance within 30 days

4th October 2012

Wider reach 400 broker centre by 1st Jan 2013 and remaining by 1st March 2013

Both ASBA and Non ASBA

SE to provide for printable downloadable form



4/11/2017 62

25th September 2012

1st Phase – 50 % of all branches as DB for ASBA

All branches for ASBA by 31st Dec 2012

HUGE CHALLENGE FOR ALL BANKS?



4/11/2017 63

RECENT REGULATORY CHANGES..2012

SEBI Board meeting decisions taken on 16th August 2012 implemented by notification

dated 4th Oct 2012 and ICDR 4th Amendment 12th Oct 2012

Union Budget 2012-13

“Simplifying the process of issuing IPO, lowering their costs and helping companies reach

more retail investors in small towns. To achieve this, in addition to the existing IPO

process, I propose to make it mandatory for companies to issue IPO’s of Rs 10 crore

and above in electronic form through nationwide broker network of Stock

Exchanges”……

Hon’ble Finance Minister Shri Pranab Mukherjee

4/11/2017 64

RECENT REGULATORY CHANGES..2012

Discussion paper on “mandatory Safety net scheme”

2008 to 2011 117 scrip's… 62% below Issue price…..more than 55

scrip's below 20%

Safety net trigger if fall below 20% from IP calculated as the volume

weighted average market price of such shares for a period of 3

months

Maximum obligation for the promoter is 5%

Applicable for applicants up to 50K

REDUCING TIME LINES 10th NOVEMBER

2015

Time frame reduced to T+6 for listing

All bids only through ASBA

Collection of bid forms by RTI, RTA, DP

Procedure laid down for compliance by each of the

intermediary

Facility to Stock Exchanges to validate the bids with

beneficiary particulars.

4/11/2017 65

4/11/2017 66

OTHER IMPORTANT CONCEPTS

Concept of Green Shoe Option

Underwriting in IPO

Grading in IPO

4/11/2017 67

CONCEPT OF GREEN SHOE OPTION

&MECHANICS OF ITS OPERATION

4/11/2017


SIMPLE THEORY OF ECONOMICS

OVER ALLOTMENT OF SHARES

APPROVAL OF SHAREHOLDERS

MONEY RECEIVED THROUGH THIS PROCESS USED FOR STABILISATION

ADDITIONAL ALLOTMENT UPTO 15% OF ISSUE SIZE

LENDING BY PROMOTERS

STABILIZING AGENT (SA) BRLM

4/11/2017 69


DISCLOSURES IN OFFER DOCUMENT

GSO BANK AND DEMAT ACCOUNT

SA CAN ONLY BUY IF MARKET PRICE IS BELOW ISSUE PRICE

SA CANNOT SELL SINGLE SHARE

CANNOT BUY BEYOND OVER ALLOTMENT

4/11/2017 70


ADDITIONAL ALLOTMENT IN CASE OF SHORTFALL

BALANCE TRANSFERRED TO IPEF OF SEBI

AVAILABLE FOR 30 DAYS ONLY

CALLED SO AFTER A COMPANY NAMED GS ADOPTED THIS CONCEPT IN ITS IPO

4/11/2017 71

Green shoe option

XYZ Limited

Existing capital by Mr.A - 300 lakh shares

Issue Size - 200 lakh shares

GSO (15%) - 30 lakh shares

Shares lent by Mr.A - 30 lakh shares

Promoter holding on IPO - 270 lakh shares

Public holding - 230 lakh shares

Issue price - Rs.100/share

Promoter/Lender - Mr. A

GSO Bank A/c. - Rs.30 Crores

4/11/2017 72

SITUATIONS EMERGING AT THE END OF 30 DAYS

GSO BANK A/C GSO DEMAT A/C ACTION TO FOLLOW POST ISSUE CAPITAL

%OF PROMOTOR HOLDING

1 Rs.30 Crores NIL Transfer 30 Cr. To XYZ Ltd. Co. to allott 30 lakh shares to Mr. A

530 lakh shares

300/530 =57%

2 Rs.30 Cr.-Rs.27 Cr = Rs.3 Cr. To IPEF 30 lakh shares @ Rs.90/share

Transfer 30 lakh shares to Mr. A 500 lakh shares

300/500 = 60%

3 30Cr.-9Cr. = 21 Cr. 21-20 = 1 Cr. To IPEF

10 lakh shares @ Rs.90/ shares

Transfer 10 lakh shares to Mr. A. Transfer Rs.20 Cr. To XYZ Ltd. XYZ Ltd. To allot 20 lakh shares to Mr.A

520 lakh shares

300/520 = 58%

4/11/2017 73

BOOK BUILDING

UNDERWRITING

&

IPO GRADING

4/11/2017 74

Underwriting

Hard Underwriting

Underwriter agrees to buy his commitmentat its earliest stage

Guarantees a fixed amount to the issuerfrom the issue If the shares are notsubscribed by investors

Where the issue is devolved on underwritersand they have to bring in the amount by subscribing to the

shares

UNDERWRITING = INSURANCE

4/11/2017 75

Underwriting

Hard Underwriting

Underwriting agreement signed before the issue

opening

Underwriting not mandatory for Fixed Price Issue

If FP is underwritten fully underwriters will have to

bring in their obligations

IN Book Built Issue Underwriting is mandatory.


4/11/2017 76

Underwriting

Soft Underwriting

Underwriting agreement only after the issue closes

Pricing is determined only after issue closing in BookBuilt Issues

Paradox of some sorts

Underwriting obligations have been met in the past????HOW??

Underwriter agrees to buy the shares at later stages assoon as the pricing process is complete


4/11/2017 77

Underwriting

Soft Underwriting

Subsequently, he places those shares with

Institutional Investors

Also holds an option to invoke a force majeure

(acts of God) clause

In case there are certain factors beyond the

control that can affect the underwriter's ability to

place the shares with the buyers


4/11/2017 78

IPO Grading (Unlisted Companies)

IPO Grading Compulsory from May 1, 2007 Optional after Feb 4, 2014

Five-point point scale

Higher score indicating stronger Fundamentals and vice versa

All the grades to be disclosed

Activity to run parallel to the filing of draft offer document

Price of the IPO not taken into account for Grading

IPO Grade : Price Matrix

High Grade

High Price

High Grade

Low Price

Low Grade

High Price

Low Grade

Low Price

First IPO Grading

CRISIL Kiri Dyes and Chemicals Ltd – 2/5(Subscription – 1.3 times)

ICRA SRS Entertainment – 2/5

4/11/2017 79

IPO Grading (Unlisted Companies)

Business Prospects and Competitive Position

Industry Prospects

Company Prospects

Financial Position

Management Quality

Corporate Governance Practices

Compliance and Litigation History

New Projects — Risks and Prospects

Key Components of Investment Decision

Fundamental

Analysis

Returns

AnalysisInvestor

Preference

Factors Considered for IPO Grading

4/11/2017 80

50.00

75.00

100.00

125.00

150.00

175.00

200.00

225.00

250.00

12-A

pr

13-A

pr

14-A

pr

15-A

pr

16-A

pr

17-A

pr

18-A

pr

19-A

pr

20-A

pr

21-A

pr

22-A

pr

23-A

pr

24-A

pr

25-A

pr

26-A

pr

27-A

pr

28-A

pr

29-A

pr

30-A

pr

1-M

ay

2-M

ay

3-M

ay

4-M

ay

5-M

ay

6-M

ay

7-M

ay

8-M

ay

9-M

ay

10-M

ay

11-M

ay

12-M

ay

13-M

ay

14-M

ay

15-M

ay

16-M

ay

17-M

ay

18-M

ay

19-M

ay

20-M

ay

21-M

ay

Market Price

Offer Price

ORBIT CORP.LTD.OFFER PRICE : Rs.110.00

OPENING DATE : 20/03/2007

LISTING DATE : 12/04/2007

ISSUE AM OUNT : Rs.100.10 CRORE

IPO GRADING : 1/5108.54%

16.32%

TIMES SUBSCRIBEDQ IB : 7.23

NIB : 4.06

RETAIL : 0.74

TOTAL : 4.48

39 Days

4/11/2017 81

30.00

40.00

50.00

60.00

70.00

80.00

90.00

100.00

110.00

120.00

07-F

eb

09-F

eb

11-F

eb

13-F

eb

15-F

eb

17-F

eb

19-F

eb

21-F

eb

23-F

eb

25-F

eb

27-F

eb

01-M

ar

03-M

ar

05-M

ar

07-M

ar

09-M

ar

11-M

ar

13-M

ar

15-M

ar

17-M

ar

19-M

ar

21-M

ar

23-M

ar

25-M

ar

27-M

ar

29-M

ar

31-M

ar

02-A

pr

04-A

pr

06-A

pr

08-A

pr

10-A

pr

12-A

pr

14-A

pr

16-A

pr

18-A

pr

20-A

pr

22-A

pr

24-A

pr

26-A

pr

28-A

pr

30-A

pr

02-M

ay

04-M

ay

06-M

ay

08-M

ay

10-M

ay

12-M

ay

14-M

ay

16-M

ay

18-M

ay

20-M

ay

Market Price

Offer Price

CAMBRIDGE TECHNOLOGY ENTERPRISES

LTD.OFFER PRICE : Rs.38.00




IPO GRADING : 2/5

200.79%

54.34%

163.

03%

TIMES SUBSCRIBED

QIB : 3.76

NIB : 3.29

RETAIL : 11.21

TOTAL : 6.71

103 Days

4/11/2017 82

50.00

60.00

70.00

80.00

90.0019

-Mar

20-M

ar21

-Mar

22-M

ar23

-Mar

24-M

ar25

-Mar

26-M

ar27

-Mar

28-M

ar29

-Mar

30-M

ar31

-Mar

1-Ap

r2-

Apr

3-Ap

r4-

Apr

5-Ap

r6-

Apr

7-Ap

r8-

Apr

9-Ap

r10

-Apr

11-A

pr12

-Apr

13-A

pr14

-Apr

15-A

pr16

-Apr

17-A

pr18

-Apr

19-A

pr20

-Apr

21-A

pr22

-Apr

23-A

pr24

-Apr

25-A

pr26

-Apr

27-A

pr28

-Apr

29-A

pr30

-Apr

1-M

ay2-

May

3-M

ay4-

May

5-M

ay6-

May

7-M

ay8-

May

9-M

ay10

-May

11-M

ay12

-May

13-M

ay14

-May

15-M

ay16

-May

17-M

ay18

-May

19-M

ay20

-May

21-M

ay

Market Price

Offer Price

AMD METPLAST LTD.OFFER PRICE : Rs.75.00




IPO GRADING : 3/5

8.93%

-7.93%

4.40

TIMES SUBSCRIBED QIB : 1.3 1

N IB : 10 .16

R ETA IL : 7.6 6

TOTAL : 4.42

63 Days

4/11/2017 83

50.00

60.00

70.00

80.00

90.00

100.00

110.00

120.00

130.00

140.00

150.00

7-M

ar8-

Mar

9-M

ar10

-Mar

11-M

ar

12-M

ar13

-Mar

14-M

ar15

-Mar

16-M

ar17

-Mar

18-M

ar19

-Mar

20-M

ar

21-M

ar22

-Mar

23-M

ar24

-Mar

25-M

ar26

-Mar

27-M

ar28

-Mar

29-M

ar30

-Mar

31-M

ar1-

Apr

2-A

pr3-

Apr

4-A

pr5-

Apr

6-A

pr7-

Apr

8-A

pr

9-A

pr10

-Apr

11-A

pr12

-Apr

13-A

pr14

-Apr

15-A

pr16

-Apr

17-A

pr18

-Apr

19-A

pr20

-Apr

21-A

pr22

-Apr

23-A

pr24

-Apr

25-A

pr26

-Apr

27-A

pr

28-A

pr29

-Apr

30-A

pr1-

May

2-M

ay3-

May

4-M

ay5-

May

6-M

ay7-

May

8-M

ay9-

May

10-M

ay11

-May

12-M

ay13

-May

14-M

ay15

-May

16-M

ay

17-M

ay18

-May

19-M

ay20

-May

21-M

ay

Market Price

Offer Price

EVINIX ACCESSORIES LTD.OFFER PRICE : Rs.120.00




IPO GRADING : 2/5

TIMES SUBSCRIBED QIB : 1.16

NIB : 11.98

RETAIL : 2.27

TOTAL : 3.42

-9.17%

-23.92%

-38.54%

75 Days

4/11/2017 84

IPO GRADING

Was grading not a factor in investors' decision making process?

Or is that the bullish secondary marketconditions will always overweigh?

Good to remember that IPOs can be floated only in buoyant markets.

Even the best issues will not sell in a bear market

Market replete with examples

4/11/2017 85

IPO GRADING

It is being assumed by most that

IPO grading is a perfect and an

objective process.

If that was the case, there are no

problems.

In reality, it appears to be a hugely

subjective and an imperfect

process.

4/11/2017 86

THANK YOU