The proposal approved by the board of Sebi on Wednesday will revive capital raising process through the primary and the secondary markets and make transactions cheaper so that the exchanges reach out and expand their businesses. It has also allowed clubbing of the period for which foreign currency convertible bonds have been held with global depository receipts for deciding when the holders can sell thema move to help Indian companies unlock the wealth from overseas issues.
The anchor investor concept means an investor can now subscribe up to 30% of the quota for institutional investors in an initial public offer, said CB Bhave, chairman, Sebi.
This is in response to requests of issuers that there was a need for investors with prior commitment who will enhance their ability to sell the issue and bring more confidence, he told reporters after the board meeting. No person related to the promoter or promoter group or the book runners who manage the process of share selling during IPOs can apply as an anchor investor.
The anchor investor or the qualified institutional bidder would pay 25% of the total investment at the time of applying for the initial public offering, and the balance within two days of the closure of the issue. This would create a level-playing field for retail investors, who pay the entire amount of subscription on application itself, and the institutional investors who were required to pay only 10% of the applied amount.
The anchor investor would also have to hold on to the stock for at least one month from the date of the share allotment.
To make investments in mutual fund more attractive, the concept of entry loads or expenses charged while investing in any scheme has been discontinued. This means fund houses cannot now specify the commission they will pay a distributor to sell a mutual fund scheme. Instead the investor and the distributor will decide the extent of commission to be paid to the distributor directly.
The incentive of commission was used by fund houses to bias distributors to sell schemes with attractive payouts instead of advising the investors honestly.
According to the Sebi statement, The upfront commission to distributors shall be paid by the investor to the distributor directly. The distributors shall disclose the commission, trail or otherwise, received by them for different schemes/ mutual funds which they are distributing or advising the investors.
Reacting to this, Anup Bagchi, executive director with ICICI Securities, a major in the distribution of financial products and online trading said, This is a fundamental move where the distributors will now have to focus on clients rather than the asset management company. It creates a bog shift in approach as earlier business was company commission-driven, now it will be service drive. Distributors will now have to seriously work on transparency and investor education. Bhave said, Distributors offer two services advisory and selling. What is paid for advice should be decided by the investor. And sales divisions will decide the extent of commissions.
A senior executive with an overseas investor said, Tthe signal is clear. The regulator wants intermediaries to expand the market to newer areas. Exchanges tend to have an operating profit margin of around 60% which makes them extremely lucrative. Hence, it makes a sense to expand their horizons to build more volumes.
The regulator would also be rationalising the norms for disclosures on rights issue made by companies. This means companies that are already listed can dispense with bulky offer documents every time they tap the markets to raise funds. Disclosures that have been done away with include summary of the industry and business of the issuer company, promise vs. performance with respect to earlier/ previous issues, Management discussion and analysis. The disclosures relating to financial statements, litigations, risk factors, etc. have been simplified. The revised set of disclosures would make the process of rights issues faster for companies and also reduce the overall cost of such issuances says the Sebi statement.