For ease of doing business, the market regulator has suggested that the one percent deposit requirement - which is that the issuer deposit one percent of the issue size with the exchanges - be done away with.
This has been suggested by the Securities and Exchange Board of India (Sebi) in a consultation paper dated February 2. Representations were made to the regulator that recent market reforms have made this requirement redundant, and that doing away with it will reduce cost for issuers and allow more people to raise capital from the market.
Under Sebi (Issue of Capital and Disclosure Requirements) (ICDR) Regulations, an issuer is required to deposit with the designated stock exchange, an amount calculated at the rate of one per cent of the issue size available for subscription to the public in the manner specified by Board and/or stock exchange(s).
This security deposit amount is refundable or forfeitable in the manner specified by the Board.
The consultation paper said, "The requirement of one percent 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".
It added, "However, considering various reforms and present framework for public/rights issue such as application through Application Supported by Blocked Amount (ASBA), UPI mode of payment, mandatory allotment in demat etc., the concerns relating to post-issue investor complaints regarding refund of application money, non-dispatch of physical certificates does not arise."
It also added that data showed that the average number of complaints per IPO have reduced after T+3 listing in IPOs. Even among these complaints, the majority were on delay in unblocking of ASBA funds by self-certified syndicate banks (SCSBs), for which SEBI vide circular dated March 16, 2021 has already prescribed a mechanism to deal with such complaints of delay in unblocking of application amounts under ASBA.
The paper said, "Therefore, since the requirement of one percent 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."
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