In a bid to strengthen investor protection norms, the Securities & Exchange Board of India (Sebi) has directed stock exchanges to maintain a security deposit of 1% of the amount of securities offered, to public or shareholders, by the issuer companies. Rapping the exchanges on their knuckles, the regulator directed the exchanges to set the anomalies right and get the exchanges and bank guarantees in position within the next three months. Sebi had noted that the exchanges had been lax in maintaining bank guarantees given by companies before listing and several guarantees had expired.
Sebi said in a statement that Clause 42 of the listing agreement mandates that every company proposing to issue new securities shall deposit, before the opening of the subscription list, with the designated exchange, an amount calculated at the rate of 1% of the amount of securities offered for subscription to the public and to the holders of the existing securities of the company.
Sebi said that in many cases bank guarantees kept with the stock exchanges under Clause 42 have expired and the exchanges have neither taken any step to prevent such eventuality nor to revive the bank guarantees so expired. ?By allowing such bank guarantees to expire, the stock exchanges have compromised with an important mechanism available for redressal of the investor grievances,? the regulator said.
Sebi said, ?The stock exchanges are directed to recoup immediately any shortfall in the deposit that has been caused due to the expiry of such bank guarantees by taking either cash or fresh or re-validated bank guarantees from the concerned issuer companies.?
The regulator told the exchanges to put in place a system to keep track of the bank guarantees furnished to it by the issuer companies. ?The said system should generate alerts at least one month prior to the expiry of such bank guarantees so that the stock exchanges have sufficient time to require the issuer companies to provide fresh or renewed guarantees in place of the bank guarantees about to expire,? Sebi said.
Stocks exchanges have been directed to invoke such bank guarantees before it expires in case any issuer company fails to satisfy the shortfall in the deposit amount either by cash or by fresh or renewed bank guarantees, within the time frame given in this regard, in spite of the said advise from the stock exchange.
Sebi said that some stock exchanges have sought advice as to whether they can adjust the 1% security deposit against the dues payable to them by the issuer companies. ?It is hereby clarified that the stock exchanges shall maintain the said 1% security deposit at all times and no adjustment against any dues of the company can be permitted,? the regulator said.
When contacted, a BSE spokesperson said it was too early to react and the exchange will look into this matter at the earliest.