1. Red carpet for startups, revised ESOP scheme on Sebi’s radar

Red carpet for startups, revised ESOP scheme on Sebi’s radar

Capital markets regulator, Securities and Exchange Board of India (Sebi) on Tuesday will likely announce final guidelines for technology and new age companies...

By: | Mumbai | Published: June 23, 2015 12:06 AM

Capital markets regulator, Securities and Exchange Board of India (Sebi) on Tuesday will likely announce final guidelines for technology and new age companies, that will give greater access to such companies in raising funds through alternative yet easier means. The announcements are part of Sebi’s quarterly board meeting that will be held in New Delhi.

Prominent announcements are likely to include a minimum investment size of R5 lakh from R10 lakh proposed in the discussion paper. Only qualified institutional buyers (QIBs) and high net-worth individuals (HNIs) will be allowed to invest in such companies through an institutional trading platform (ITF).

Sebi may also increase the QIBs’ allocation limit to 80% from the proposed 75% and reduce the minimum lot size at Rs 3 lakh from the proposed R5 lakh to ensure greater participation. FE had reported that Sebi may also consider reducing the number of HNI allottees to 300 from 500, since a high-spread requirement may fragment holdings.

These rules are being formulated after assessing the growing need of capital for new age companies who have very niche and specific business models, and are understood by ‘sophisticated investors.

Sebi chairman UK Sinha had said that the regulatory body met about 40-50 entrepreneurs in Bangalore to understand their requirements and develop certain set of rules to allow alternative means to raise funds. “We want our companies to list in India rather than being forced to list in another country,” Sinha had said at a press conference in March 2015.

Unlike in a traditional listing, Sebi may allow new age or start-up companies to not fully disclose the objects of fund raising. Sebi has observed in its discussion paper that many start-ups do not incur profits in the initial years, but have the potential for rapid growth. Yet the lack of better price discovery mechanisms in India, compelled many entrepreneurs to consider listing in international markets like Singapore and the US, instead of domestic exchanges.

Sebi is also expected to clarify the term promoters as founders of the startup and differentiate them from venture capital (VC) and private equity (PE) firms who are investors in such companies.

Apart from the final guidelines on start-ups, Sebi may also release detailed guidelines on electronic initial public offers (e-IPOs), where investors can bid for shares on internet. Initially, investors would be able to place bids through internet and by using broker terminals across the country as against the current practice of filing long documents.

The process is estimated to drastically cut the timeline for listing of shares to within two-three days of the IPO as against 12 days at present.

Sebi also plans to announce revisions to the employee stock options (ESOPs) scheme in the context of restrictions laid down in the new insider trading norms. The regulator may lift the six-months contra ban and allow selling of shares through ESOPs after seeking approval from the company to prevent the charges of insider trading. The new rules disallowed employees to exercise their ESOPs.

Sebi is also expected to release its annual report for FY14-15 and have detailed discussion on the merger of commodity futures market regulator Forward Markets Commission with Sebi as well as certain changes to algorithmic trading regualtions.

Likely agenda at board meet
* May announce minimum investment size of R5 lakh for new age companies. Only QIBs and HNIs will be allowed to invest in such companies through an institutional trading platform
* May hike QIBs’ allocation limit to 80% from the proposed 75% and reduce the minimum lot size at R3 lakh from the proposed R5 lakh
* May allow startups to not fully disclose the objects of fund raising
* Likely to release detailed guidelines on e-IPOs
* May announce revisions to the ESOPs scheme, namely lifting the 6-months contra ban and allow selling of shares through ESOPs after seeking approval from the company

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