The key decisions by the board of Securities and Exchange Board of India (Sebi) on June 25 included a relaxation in the pricing methodology for preferential share allotment, amendment to the prohibition of insider trading rules and amendments to the settlement regulations.
Sebi has now temporarily allowed companies to base the pricing on the two-week average instead of the average price of the last 26 weeks.
“I think this move would certainly enhance access to capital for companies, given the COVID-19 pandemic. There has been an unusual impact on the stock market in the last few months, and, hence, the 26-week look-back period would in some cases give an unrealistic price. Also, as uncertainties continue, this is a welcome move to ease pressure for investors and provide greater access of funds to companies,” Moin Ladha, Partner, Khaitan & Co, told Moneycontrol.
The amendments to SEBI (Prohibition of Insider Trading) Regulations, 2015, include maintaining a structured digital database containing the nature of unpublished price-sensitive information and the names of persons who have shared the information; automation of the process of filing disclosures to stock exchanges, and restriction on trading window to be not made applicable for transactions as prescribed by Sebi.
Also, entities will now have to file the non-compliances to the Code of Conduct with the stock exchanges, and the fine, if any, collected for such non-compliance shall be credited to the Investor Protection Education Fund administered by the Board under the Sebi Act.
Srinath Sridharan, independent markets commentator, hailed the move. “It is a progressive idea. In today’s digital era, maintaining a database that lists the nature of unpublished price-sensitive info and list of those who have shared that info could be a game changer. If it is further linked to PAN/Aadhaar/info on individual demat accounts, it could prove to be an audit trail for any investigation,” he said.
The Sebi board also allowed Substantial Acquisition of Shares and Takeover (SAST) regulations amendment proposals, including allowing bulk and block deals for completion of acquisitions.
As per a SEBI press release, “In case of indirect acquisitions, where a public announcement of an open offer has been made, an amount equivalent to 100% of the consideration payable under the open offer must be deposited two working days before the date of detailed public statement. The escrow account shall be in the form of cash and/ or bank guarantee.”
Currently, this is applicable for direct acquisition only.
In case of delays in making open offer attributable to the acts of omission or commission of the acquirer, a simple interest of 10% shall be paid to all shareholders who have tendered the shares in the open offer.
The amendments to the Settlement Regulations specify that promoters should be included along with the Principal Officer while calculating the base amount. The base amount for alleged defaults relating to open offer violations, where making the open offer becomes infructuous, has to be rationalised and the benchmark for certain base amount has to be suitably amended.
In order to save time, instead of issuing settlement notice under Regulation 18, a paragraph shall be included in the show-cause notice, informing the noticee about the option to file a settlement application.
According to Anil Choudhary, Partner, Finsec Law Advisors, “Changes in settlement regulations are more in the nature of fine-tuning the regulations based on the experiences they have faced in actual cases. In terms of the proposals, Sebi seeks to make it more costlier for promoters to settle their cases and rationalise their regulations which otherwise impeded settlements of cases where open offer has been rendered infructuous because of change in stock prices.”
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