In yet another step to streamline and simplify the rights issue process, the Securities & Exchange Board of India (Sebi) proposes to introduce e-trading in rights issues. This move will enable people with demat accounts to buy and renounce the rights entitlements on electronic platform. For this purpose, Sebi has issued a discussion paper.
Right issues also have the key feature of ?rights renunciation?. As on the date, there is no platform for electronic trading of rights entitlements. However, it is understood that rights entitlements are presently traded in a physical form. In view of same, a uniform and exchange driven electronic mode for trading of rights entitlement, is envisaged, says Sebi.
Under the proposed format, ?shareholders, who do not want to exercise their Rights Entitlements (RE), can renounce their REs by selling them on the electronic trading platform of stock exchanges?, Sebi said while inviting comments on the proposal from stakeholders.
The trading in REs will close three working days before the closure of the rights issue, the regulator said, adding, it will avoid last minute rush and also ensure that beneficial owner gets sufficient time to submit the entitlement applications to the issuer company.
The introduction of electronic trading is aimed at further rationalisation of the process of rights issues by minimising manual intervention. Sebi has recently decided to reduce the time-lines for the rights issues as part of the capital market reforms. As per the proposal, the electronic rights issue process will apply to those shareholders who have active demat accounts and hold shares on the record date for the rights issue.
The rights issue process in physical form, Sebi said, will hold good for those who hold shares on the record date in physical form. Under the electronic format, the issuer will be required to send a letter to the shareholder informing him that rights entitlements have been credited to his demat accounts and also the duration of RE trading.
It would be the duty of the registrar to credit the RE in the given ratio into the demat accounts of the eligible shareholders on the instruction of the issuer, Sebi said while explaining the procedure to be followed in the electronic format. After the REs have been credit into the demat accounts, shareholders will have the option to either subscribe to the rights issue or renounce/trade them electronically. Like the shares, the REs could be trade in the secondary market in the stock exchanges for up to three days before the closure of the rights issue, the regulator said.
The registrar, it added, would be required to finalise allotment of shares on the instruction of the issuer and credit the rights shares into the demat account of shareholders.