The Securities & Exchange Board of India (Sebi) on Thursday proposed relaxing lock-in requirements for existing shareholders to address long-standing challenges with regard to pre-IPO pledged shares. The regulator has also proposed replacing the abridged prospectus with a simplified document summary. The moves are aimed at boosting retail participation in the booming IPO market.
In a consultation paper, Sebi has proposed enacting these changes by amending the Issue of Capital and Disclosure Requirements (ICDR) Regulations, 2018. “The existing system of the depositories does not allow lock-in of certain shares such as those under pledge. This creates challenges for issuer at the time of IPO.”
The regulator has sought public comments on the same by December 4.
The paper comes only a day after Sebi Chairman Tuhin Kanta Pandey described the current pre-IPO lock-in process as “cumbersome”.
The proposed framework calls for the automatic enforcement of lock-in requirements even if pledges are invoked or released, a move that could address delays in the current listing process.
Sebi also proposed that issuing companies should upload a summary of key disclosures as part of public offer papers to help improve investors’ understanding. The voluminous nature of the offer document may deter retail investors from reviewing such documents, thereby leading to a lack of engagement and participation in the IPO process, including providing comments on disclosures.
It also observed that retail investors often rely on secondary and unregulated sources of information such as grey market trends and unverified social media for making investment decisions. In addition, despite the mandated 21-day period for public comments under Regulation 26(1) of the ICDR Regulations, as well as similar provisions for pre-filled offer documents, FPOs and SME IPOs, public comments on draft offer document remain negligible.
This lack of participation is inconsistent with the regulatory intent, which seeks to encourage scrutiny of the offer document by both institutional as well as retail investors, the paper said, adding that with the availability of the summary of the offer document, the requirement to prepare an abridged prospectus may be dispensed with.
