Mumbai: The capital markets regulator will consider cutting the listing time for initial public offerings (IPOs), allowing alternative investment funds (AIFs) to invest in commodity derivatives and tighten rules for participatory notes (P-Notes) at its 21 June board meeting, two people familiar with the matter said.
The Securities and Exchange Board of India (Sebi) plans to reduce the listing time to four working days from the current six and trim the size of share sale documents, said one of the two people, both of whom requested anonymity.
“It takes six days after the close of bidding in the initial public offering for a company to list on stock exchanges, keeping investors’ funds locked in for a long period of time," this person said.
“This may be done by making the post-issue process more efficient. Similarly, the process for rights issues is also being streamlined," said the second person.
The listing timelines have become shorter following the introduction of the mandatory Asba (applications supported by blocked amounts) facility for retail investors in November 2015, said Mahavir Lunawat, group managing director of investment bank Pantomath Advisory Services Group.
Asba is an online payment facility provided by banks wherein the application money gets debited from customer accounts only after the stock allotment is done.
“Some companies are now listing in less than six days. To ensure this timeline for all companies, banks can work on confirming blocking of application money and bidding on a real-time basis," said Lunawat.
The idea was first mooted in a discussion paper released in January 2015, where Sebi proposed draft norms for electronic IPOs and fast-track follow-on public offerings and rights issues.
The second reform being considered is to reduce the size of the share sale documents. “Offer documents for IPOs have become bulky. While Sebi has reduced the size of abridged prospectus, the disclosures in the full offer document also need to be rationalized," said the second of the people cited earlier.
Sebi in December 2015 had notified a five-sheet abridged prospectus that companies need to file for public offerings—a step aimed at making it easier for investors to understand key points. Currently, offer documents run to 400-500 pages and investors often find it difficult to get key information.
“The information in the IPO papers is repetitive in nature. There is full information of company’s financials, its business model and then one can find mention of the same information as a summary too. Stereotypical information such as tax benefit, industry overview, etc., could also be avoided," said Lunawat.
Sebi may also allow AIFs to invest in commodity derivatives. Mint had first reported this on 13 February.
“On 28 April, Sebi had issued a discussion paper to allow Category III AIFs to invest in commodity derivatives to bring an institutional play in the segment and infuse liquidity in commodity trading. This may be finalized soon," said the first person cited earlier.
According to the Sebi proposal, AIFs will not be allowed to invest more than 10% of their corpus in a single commodity and will need to take permission from existing investors before investing in commodity derivatives.
Sebi also plans to tighten rules on participatory notes (P-Notes) by implementing proposals in its discussion paper issued on 30 May.
Sebi will levy a $1,000 fee on foreign portfolio investors (FPIs) for each P-Note issuance and ban P-Notes that are based on derivatives used purely for speculative purposes. P-Notes, which are offshore derivative instruments, are issued by registered FPIs to overseas investors who wish to invest in Indian stock markets without registering with Sebi.