Friday, September 11, 2009

Revised Primary Capital Market Norms

In the 17 years that SEBI has been in existence, the rules pertaining to issue and sale of capital to the public have undergone sea-change. This is not surprising as the nature and size of the Indian primary markets have witnessed significant growth in these years.

The primary market norms (post the creation of SEBI) were contained in the SEBI Disclosure and Investor Protection Guidelines issued in 1992. This was followed up with several clarifications by SEBI in the subsequent years, such that by 2000 there were more than 20 clarifications so issued. Beyond what the nomenclature indicates, each “clarification” usually laid down substantive rules on issue of securities by Indian companies. For instance, there were separate clarifications on issue of debt securities, on issue of securities by development financial institutions, on rights issues and even (the then novel scheme of) book-built public offering of securities.

The close of the 20th century witnessed mega public offerings by Indian companies, which whetted the appetite of foreign investors. The availability of foreign capital in Indian domestic listings significantly altered the nature of public offerings. Disclosures in offer documents became extensive, as this was also driven by the need to satisfy foreign investors’ requirements as Indian securities were sold as private placements in other jurisdictions, e.g. under Rule. 144A, Regulation S, etc. This also explains the emergence of the practice of engaging international legal counsel in pure Indian domestic listings.

In order to cater to these rapid developments over the turn of the century, SEBI gave effect to a consolidation exercise by enacting the SEBI (Disclosure and Investor Protection) Guidelines, 2000 that superseded the previous guidelines and clarifications. However, since then, barring some blips in the markets (such as owing to the dot-com bust earlier this decade and the global financial crisis more recently), the Indian primary capital markets have witnessed a boom in listings. From a regulatory standpoint, SEBI has been vigilant in incorporating emerging concepts into its guidelines. Consequently, concepts such as the green-shoe option, qualified institutional placements, the applications supported by blocked accounts (ASBA) process were incorporated into the 2000 guidelines, sometimes by way of incorporation of separate chapters.

Recognising the need for further consolidation of the various norms, SEBI has now notified the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 which takes effect from August 26, 2009. This supersedes the 2000 guidelines. The notification details the broad nature of the changes introduced from the previous guidelines.

While we are likely to have the opportunity of commenting on specific issues within the Regulations as and when they arise, this exercise indicates SEBI’s zeal to progressively modify its regulations to meet with ongoing market requirements.

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