BackSebi floats paper on offer-for-sale norms
Market regulator says received suggestions from market to reduce OFS notice from two trading days prior to the day of OFS issuance to one day prior
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Mumbai: The Securities and Exchange Board of India (Sebi) on Monday floated a discussion paper on potential changes in norms for offer-for-sale (OFS) issuances.
The market regulator said it has received suggestions from the market to reduce the OFS notice from two trading days prior to the day of OFS issuance (T-2) to one day prior to the issue (T-1). Currently, sellers are required to give an OFS notice to stock exchanges latest by 5pm two days ahead of the issue. The floor price can be disclosed latest by 5pm on the day before the issue.
“…market starts anticipating OFS floor price as soon as OFS is announced. In anticipation of discount, market participants can short the stocks a day prior to OFS leading to price volatility. Such volatility may affect the price offered by the sellers. Therefore, suggestion has been received to reduce OFS notice from T-2 days to T-1 day," Sebi said.
The capital market regulator said it has also received suggestions to impose price bands on the stock of a company a day before the OFS. Presently, price bands are not applicable for stocks, on which derivative products are available. For stocks that do not have any derivatives products, a price band of 20% is applicable.
In its discussion paper, Sebi said the market participants have raised a concern on price volatility in the trading days ahead of the issue, which makes it difficult to arrive at an appropriate floor price for OFS. “Therefore, based on these concerns, it has been suggested that price band may be placed on such stocks the day prior to OFS," said the paper.
The paper also discussed the option of a trading halt on the stock on the date of the OFS. Sebi said market participants have highlighted that volatility in the stock on the day of the OFS can lead to a situation where the stock trades below the OFS price in the secondary market. This could impact the sale of shares through OFS.
According to the discussion paper, a suggestion has also been made to allow OFS issuances on Saturdays, when the secondary market remains closed. Further, there is also a suggestion that retail investors in OFS should be given the option to bid at the cut-off price. As per the extant norms, in an OFS issue, the seller may give an option to retail investors to place price bids or place a bid at a cut-off price.
“Recent experience with OFS has shown that some retail investors bid at high prices on the assumption that they would get allotment at cut-off price. Therefore, it is suggested to make it mandatory for sellers to provide option to retail investors to place price bid or place bid at cut off price for better retail participation," the paper said.
Sebi has sought public comments on the discussion paper by 18 April.
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