Sebi plans shorter gap between IPO and listing

Mumbai: The capital markets regulator Securities and Exchange Board of India (Sebi) is trying to shorten the gap between an initial public offering (IPO) and the listing of shares to three days from the current six days, according to two people familiar with discussions held by the regulator.

The matter was discussed at a meeting between Sebi officials and market intermediaries late last month, they said.

Reducing the time between an IPO and listing of shares helps limit risks related to market volatility, which may emerge within that period, and would bring closer to developed markets like the US where the time between an IPO and listing of shares is as low as one day.

Attempts to streamline processes come at a time when the primary markets have picked up steam.

In 2015, 21 companies raised Rs.13,614.08 crore through IPOs— the highest in five years, data by Prime Database showed. So far in 2016, seven companies have tapped primary markets to raise close to Rs.3,200 crore, and an additional two dozen companies with valid Sebi approvals are waiting to launch their IPOs, the data showed.

“In a meeting with market intermediaries, Sebi discussed the idea of bringing down listing time to three days and various ways in which this could be achieved. It was an informal, knowledge-sharing exercise as the regulator is keen on expanding the reach of our markets,” said one of the persons cited above on condition of anonymity.

An email sent to Sebi on Monday was not answered.

In November, Sebi halved the listing time for all IPO transactions opening on and after 1 January to T+6 from T+12. (T denotes the closing date of an issue and the number represents business days in listing shares on exchanges). The system was introduced with the objective of reducing costs as well as time associated with an IPO.

Discussions are now underway to move to a T+3 system.

Merchant bankers and corporate lawyers say that a further reduction in listing time would benefit the markets but add that this would involve a significant overhaul in the prevailing systems.

“Reducing listing time will particularly help QIBs (qualified institutional buyers), who bid for significant quantities of shares and deposit full money for their bids, by unblocking capital faster in cases where bids are only proportionately accepted for allotment. The earlier regime of accepting margin money from QIBs has been long abolished. However, the process will not be easy and will require synchronization among market intermediaries like brokers, ASBA (applications supported by blocked amounts) banks and depository participants (DPs),” said Kaushik Mukherjee, partner, BMR Legal, the legal arm of Indian accountancy firm BMR Advisors.

Lawyers also explained that there are numerous procedures involved in an IPO and said that the regulator will have to simplify each step to achieve its goal of a quicker listing.

These processes include manual filing of application forms in some cases, filing of prospectus with the RoC (Registrar of Companies), verification of electronic bid details by exchanges, ASBA fund verification and the final allotment and permission to trade following submission of documents.

“While any proposal to reduce the post-issue timeline further to align with developed markets, such as the US where trading commences on T+1 basis, may be welcome, the approach for post-issue mechanisms in various jurisdictions are different. Accordingly, further reduction in post-issue timelines, say to a T+3 format, would require that various post-issue processes are completed within this period which may pose challenges under the current framework. Accordingly, changes would be required in the manner in which post-issue processes for public offers are presently executed in India today,” said Abhimanyu Bhattacharya, partner at Khaitan and Co., a tax and law firm

Sebi chairman U.K. Sinha has publicly spoken about the concept of quicker IPO listings and has discussed the idea of bringing them on par with secondary market settlements.

The idea was also reiterated in a discussion paper released in January 2015, where Sebi proposed draft norms for electronic-IPOs (e-IPOs) and fast-track follow-on public offerings (FPOs) and rights issues, in an effort to minimize the listing timeline, boost retail participation and make it easier for companies to raise money.

“…Once the process (of T+6 listing) gets stabilized, timelines can be further curtailed to T+3/2 days. Further, on account of reduction in printing of application forms, the overall cost of public issues will also come down,” said the discussion paper titled Revisiting the capital raising process.

While the benefits are plenty, bankers and lawyers also flagged certain risks that may emerge, such as mistakes in know-your-customer (KYC) verification or in uploading bids, which are all manual functions and need to computerized.

“One can aspire to make end-to-end process electronic. However, we must understand that there are vast differences in India’s primary and secondary markets in terms of KYC requirements. While it is possible to achieve T+3 listing, it would be premature to explore the concept as India recently moved to a T+6 regime, and it is the best you can achieve in the present situation,” said a senior official at a top domestic bank, requesting anonymity.

Initial share sales had slowed down to multi-year lows between 2011 and 2014, prompting Sebi to introduce measures to boost the primary markets.

Over the past year, however, the number of primary issuances have surged due to improved retail sentiment towards equity markets, resulting in inflows into equity mutual funds.