A booster dose for retail participation
The key change now proposed is to make the safety net “mandatory”. Sebi, in its discussion paper on the subject, had proposed that issuers will have to compulsorily offer a safety net to all retail individual investors within a period of three months from the date of listing of equity shares, if the share price falls more than 20 per cent of the issue price. Further, the safety net is to be provided only after observing the trend in the broader index, for three months from the date of listing.
The safety net provision shall trigger only in cases where the price of the shares depreciate by more than 20 per cent from the issue price. The price for this provision shall be calculated as the volume-weighted average market price of such shares for a period of 3 months from the date of listing.
Further, the 20 per cent depreciation in share price shall be considered over and above the general fall, if any, in the market index, which could be the BSE-500 or S&P CNX 500.
HOW WILL IT WORK
Case-1: Assume listing price for share is Rs 100 and market index on listing date is 1,000. After 3 months, volume-weighted average market price of the shares is Rs. 79 (drop of 21 per cent) and the market index is 1,000 (drop of 0 per cent). The
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