Market regulator, Securities and Exchange Board of India (Sebi) in its circular on Friday decided that, Indian Depository Receipts (IDR) which have completed one year of issuance shall be allowed for redemption, only if they are infrequently traded in stock exchanges. ?The extant regulatory frame work does not permit fungibility but only redemption. Therefore, allowing redemption freely in the absence of two way fungibility could result in reduction of number of IDRs listed, thereby impacting its liquidity in the domestic market, said the Sebi circular.

This means that Standard Chartered, the only foreign company to have issued IDRs to the Indian shareholders, cannot convert the IDR into shares. The StanChart IDRs were due to come up for redemption on June 11, 2011. It has been one year since Standard Chartered came out with IDR and is currently listed on both BSE and NSE. 10 StanChart IDRs represent one underlying equity of the UK-listed bank.

Till now, automatic fungibility of IDRs aren?t permitted and fungibility of IDRs into the underlying shares were permitted only after the expiry of the 1-year period from the date of issue of the IDRs and subsequent to obtaining RBI approval on a case-by-case basis.

Regulator added that the two-way fungibility (the ability to purchase existing Shares on the London Stock Exchange and/or the Hong Kong Stock Exchange and deposit them into the IDR programme) is currently not permitted. At the time of redemption or conversion of IDR into underlying shares the Indian holders of IDRs are required to comply with the provisions of the Foreign Exchange Management Regulations, 2004.

Sebi said IDRs shall be deemed to be ?infrequently traded? if the annualised trading turnover in IDRs during the six calendar months immediately preceding the month of redemption is less than 5% of the listed IDRs.

The issuer company shall test the frequency of trading of IDRs on a half yearly basis ending on June and December of every year. So if IDRs are considered infrequently traded, it shall be the trigger event for redemption.

Sebi circular also stated that, ?The issuer company shall make a public announcement in an English and Hindi language newspaper with wide circulation in the prescribed format as well as notify the stock exchanges. Such announcement shall be made within 7 days of closure of the half year ending on which the liquidity criteria is tested.?

The circular is applicable with immediate effect and IDR holders could submit their application to the domestic depository for redemption of IDRs within a period of 30 days from the date of such public announcement.

Further, redemption of IDRs shall be completed within a period of 30 days from the date of receipt of application for redemption and after redemption the domestic depository shall notify the revised shareholding pattern within 7 days of the process.