More regulatory teeth for SEs

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In yet another move to restructure the stock market, especially in an environment where stock exchanges (SEs) have been demutialised and corporatised, the ministry of finance, in consultation with the Securities & Exchange Board of India (Sebi), has decided give the exchanges more teeth and make them accountable for delisting of securities. Earlier, the ministry and the regulator had both highlighted the need to enhance the role of the exchanges in regulating the markets.

The accountability norm could be a major change to be incorporated in the new delisting guidelines that will be announced soon. All the other provisions in the previous draft, including reverse book building, are expected to remain intact, sources close to the development said. This is also seen as a precursor to implementing the ministry’s other initiative to peg the minimum public shareholding in listed companies at 25%. The delisting of securities and keeping the minimum level of public shareholding at 25% are all inter-linked issues, sources explained.

At the moment, there are more than 10,000 companies listed on the exchanges and barely a third are actively traded. Many promoters have used the listing facility to garner funds from time to time and remained dormant for the rest. Some have used the benefits of being a listed entity but never bothered about shareholder interests. Exchanges, keen to retain the listing fees, were reluctant to take any “compulsory” delisting initiatives against erring companies. Hence, the regulator and the ministry believe it is important to make the exchanges more accountable to bring in listing discipline, sources said.

Sebi's previous guidelines proposed certain conditions for delisting the securities of a company. The criteria under which a company could go for delisting included a situation of continuous loss, low frequency of share trading, instances of public shareholding falling below 10% level and non-compliance of various clauses of the listing agreement. If any of these conditions are met, the exchange can initiate action for delisting the shares.