SEBI Board met on 6th March in Mumbai and took the following decisions:
- Margin Requirement in Public Issues
The Board decided that with effect from 1st May 2010, all types of investors would be required to bring in 100% of the application money as margin along with the application for securities in public issues. This would avoid inflated demand in public issues and provide level playing field to all investors subscribing for securities.
- Reservation for Employees in Public/Rights Issues
The Board also decided that the reservation for employees in public/rights issues would be available to employees of subsidiaries and material associates of the issuer whose financial statements are consolidated with the issuer’s financial statements.
- Reforms in Derivatives Market
The Board further decided in principle to allow the Stock Exchanges to introduce:
a. equity derivatives contracts with tenures upto 5 years;
b. derivative contracts on volatility indexes which have suitable track record, and
c. physical settlement of equity derivatives.
SOME OBSERVATIONS AND COMMENTS ON SEBI MEET
The full payment of 100% of the application money in IPO’s and FPO’s would make all investors at par and take away the extra advantage that QIB’s had and got by paying a mere 10% of the application amount. The introduction of this provision from 1st of May would see a spurt of issues in the next 40-50 days to beat this deadline.
The extension of employee quota to employees of subsidiaries is a welcome step. Already the quota for employees has been reduced to be on par with retail applicants and is limited to a maximum of Rs one lac.
The physical settlement of contracts in equity derivatives will help in a big manner and bring about greater price discovery. This will help in reducing the spreads, reduce volatility and make markets more realistic. It will provide greater money making opportunities to people who have the money and the shares.
SEBI has also vide a circular dated Friday the 5th of March, made it mandatory to provide details of those QIB’s who have been allotted 5% or more of the shares offered through a QIP (Qualified Institutional Placement) with immediate effect. The circular goes on to state the current holding, fresh allotment and total holding have all to be made public.
All in all it’s a great day for investors particularly those in the retail and HNI category.