Revamping of SEBI Regulations- Delisting, Takeover and Insider Trading
1. Revamping of SEBI Regulations: A move towards ensuring lucidity in the Regime
2. NEW DELISTING NORMS: A Boost for Promoters as well as Retail Investors
SEBI’s Delisting Arena:
SEBI (Delisting of Equity Shares) Regulations, 2009
(Notified on June 10, 2009)
3. What is Delisting ?
•“Delisting”istotallythereverseoflisting.Todelistmeanspermanentremovalofsecuritiesofalistedcompanyfromastockexchange.Asaconsequenceofdelisting,thesecuritiesofthatcompanywouldnolongerbetradeableatthatstockexchange.
•"Delisting"i.e.thesaidremovalfromaStockExchange,maybeVoluntary(i.e.atthewilloftheCompany)orCompulsory(i.e.outofapenalactionbytheStockExchanges, forthereasonofanyviolations/lapses).
DELISTING
STOCK EXCHANGES
COMPANY
4. Brief History: The Evolution of Delisting Regulations
oIn1979,videcircularNo.F6/9/SE/78datedJune28,1979issuedbytheMinistryofFinance,delistingofcompanieswaspermittedsubjecttocertaincriteriabeing
satisfiedbytheconcernedcompany.
oSEBIvidecirculardatedApril29,1998laiddownaframeworkforvoluntaryor
compulsorydelistingofsecuritiesfromtheStockExchanges.
oSubsequently,SEBIcameoutwithSEBI(DelistingofSecurities)Guidelines, 2003.
oThereafter,SEBI(DelistingofEquityShares)Regulations,2009("thesaid
Regulations")wasnotifiedonJune10,2009.
5. Reasons for Delisting
For
Smaller & undervalued Companies
Other Companies
maintaining a listing status entails various costs which may no longer be justifiable.
maintainingalistingstatusinvolvesvariousongoingcostsrelatingtofinancialreportingrequirements,ad- hocdisclosures,investorrelationsandtheincreaseddemandsonmanagementtodevelopagood
relationshipwithanalystsandinvestors.
7. Why there is a need to review Delisting Regulations??
Minorityshareholdersholdingsignificantstakeexercisedisproportionatepowersindeterminingexitprice;
Parkingofshareswithfriendlyinvestors/Tacitunderstandingbetweenmarketparticipants;
Destabilizationofprocessbyputtingunreasonablebids.
Issueshighlighted:
Pricediscoverymechanism
Lackofsufficientdemand/EnhancingparticipationinRBB
Shorteningofprocess
ThresholdLimit
Delistingofsmallcompanies
IndicativeTimelinestocompletethedelistingprocess
8. Main Highlights of New Delisting Norms vis-à-vis Extant Norms
AsperextantRegulations,theDelistingOfferbeconsideredsuccessfulonlywhenthepostofferholdingofthePromoterreachesthehigherofthefollowing:
When Delisting Offer be considered successful?
90% of the total issued shares of that class
Pre-Offer Promoter Holding + 50% of the Offer Size.
Rationale
To address the concern of informal arrangements or parking with friendly investors
9. Main Highlights of New Delisting Norms vis-à-vis Extant Norms Contd…
Extant Delisting Norms
Proposed Delisting Norms
Final Price= Price at which maximum number of shares are tendered by the Public Shareholders
Final Price= Price at which shareholding of the Promoter plus shares tendered by the public shareholders reaches the threshold limit of 90%
10. Determination of Final Exit Price
ExitpricedeterminedthroughReverseBookBuilding(RBB)tobethehighestpriceatwhichthepromotertouchesthethresholdof90%insteadofthepriceatwhichthemaximumnumberofsharesaretendered:
Bid price (Rs.)
No. of investors
Demand
(no. of shares)
Cumulative Demand
(no. of shares)
550
5
2,50,000
2,50,000
565
8
4,00,000
6,50,000
575
10
2,00,000
8,50,000
585
4
4,00,000
12,50,000
595
6
1,20,000
13,70,000
600
5
1,30,000
15,00,000
605
3
2,10,000
17,10,000
620
1
5,00,000
25,00,000
Exit price as per the proposal
Exit price as per the existing framework
Rationale-To ensure that a single investor does not dictate the price for delisting
Promoter shareholding = 75,00,000 shares
Public shareholding = 25,00,000 shares
Min Tendering = 15,00,000 shares 90% threshold limit for successful Delisting
11. Determination of Exit Price and Exiting No.
Acquirertoreach90%ofthetotalshareholdingforsuccessfuldelistinginsteadof(90%oftotalorpromotershareholdingplus50%ofremainingoffersize,whicheverishigher)asexisting;
Rationale-Promotershareholdinghasbeencappedatmaxof75%andtherequirementofacquiring50%oftheoffersizewouldberedundant
12. Extant Delisting Norms
Proposed Delisting Norms
No Restriction Prescribed
NopersonbelongingtothePromoterGrouphavesoldsharesduringsixmonthsprecedingthedateofBoardMeetingwhereDelistingProposalisapproved.
Main Highlights of New Delisting Norms vis-à-vis Extant Norms Contd…
13. Main Highlights of New Delisting Norms vis-à-vis Extant Norms Contd…
Extant Delisting Norms
Proposed Delisting Norms
Delisting Process generally takes approximately in 117 working days
Delisting Process proposed to be completed approximately in 76 working days
SEBI might waive off the requirement of seeking in-principle
14. Extant Delisting Norms
Proposed Delisting Norms
Company having paid up capital not exceeding Rs. 1 Cr. and having no trading in its scrips immediately preceding 1 year from the the date of decision of delisting;
Or
Company having upto 300 public shareholders and the paid up value of shares held by them is upto Rs. 1 Cr.
Company having paid up capital not exceeding Rs. 10 Cr. and Net worth not exceeding Rs. 25 Cr. as on the last day of previous financial year.
+
No trading during last 1 year
+
Securities are not suspended from Stock Exchange
Main Highlights of New Delisting Norms vis-à-vis Extant Norms Contd…
15. Main Highlights of New Delisting Norms vis-à-vis Extant Norms Contd…
Extant Delisting Norms
Proposed Delisting Norms
No Exemption from compliance with the provisions is allowed.
SEBImayrelaxthestrictenforcementofanyrequirementoftheprovisionsofDelistingRegulations.
16. PROPOSED CHANGE IN DELISTING & TAKEOVER CODE:
New Jigs for the Acquirers
17. SEBI’s Decisions opened new avenues for Acquirers
Option to the Acquirerto delist the shares directly through Delisting Regulations pursuant to triggering Takeover Regulations.
Acquirer whose shareholding increases beyond maximum permissible non- public shareholding pursuant to takeover open offer, is not eligible to make a voluntary delisting offer as per Delisting Regulations unless a period of 12 months is elapsed.
On the specific demand of industry
Subject to a stipulation
Incase delisting attempts fails, Acquirer would be required to complete mandatory open offer under Takeover Regulations along with payment of interest @ 10% p.a. for the delayed open offer.
20. Case Study……
ACompanyhavingPromoterShareholdingof64%andoutof36%ofNon-PromoterShareholding, 30%stakeisheldby2foreigninvestorsandrest6%byGeneralPublic.Since,sharesoftheCompanyareinfrequentlytradedand2foreigninvestorsdonotwanttotendersharesintheDelistingOfferandarewillingtobeapartofPAC,onlyforthepurposeofDelisting??
Whether the said foreign investors can be considered as PAC only for the purpose of Delisting Offer??
21. SEBI’s Decision pertaining to tendering of shares in Delisting/Buyback/Takeover offers
AwelcomemovethatallowsuseofStockExchangePlatformfortenderingsharesinDelisting/Buyback/Takeoveroffershaveultimatelyresultedinremovingtaxhurdlesresultingina“win-win”situationforstakeholders.
22. Present Scenario in Buyback, Takeover & Delisting Offers
Proposed Scenario
Considered as off market transaction and liable to hefty Capital Gain Tax in the hands of investors.
Considered as secondary market transaction and now liable only to STT i.e. Investors are not liable to pay Capital Gain Tax.
ThiswasalongdrawndemandfromtheInvestorscommunitythattenderingofsharesundertheseoffersshouldnotattractCapitalGains(CG)Tax,buttheSecuritiesTransactionTax(STT)
Tax Burden
24. What is Insider Trading?
Insider trading is dealing in securities of a listed company by
any person who has knowledge of material inside information
which is not available to general public.
It is breach of a fiduciary duty or other relationship of trust,
and confidence.
It is a crime if made to get wrongful gain or avoid losses
27. Main Highlights of SEBI’s decisions to amend Insider Trading Regulations
oReviewofthe22yearoldInsiderTradingRegulations:ThesaidRegulationswerepromulgatedin1992andovertheyears,thecapitalmarketsscenariohaschangedalot,sothisoverhaulingisawelcomemove;
oProposedtointroduceprovisionsonProhibitiononderivativetradingbydirectorsandKMPsonsecuritiesoftheCompanyinlinewiththeCompaniesAct,2013;
oProposaltointroduceconceptofthird-partyconnectedpersonswiththeintenttocurbmalpractices.
29. INSIDER TRADING –Sec 195 of Companies Act, 2013
Any act
Subscribing, buying, selling, dealing
Agreeing to subscribe, buy, sell or deal
of
OR
OR
In any securities by any
Director
KMP
Any other officer of the company
OR
Either as principal or agent, if such
OR
Director
KMP
Any other officer of the company
OR
Is reasonably expected to have access to any non-public price sensitive information in respect of securities of Company
An act of counseling about procuring or communicating directly or indirectly any non public price sensitive information in respect of securities of Company
OR
30. INSIDER –As per SEBI (Prohibition of Insider Trading) Regulations, 1992
connected with the company
OR
deemed to have been connected with the company
AND
Is reasonably expected to have access to
UNPUBLISHED PRICE SENSITIVE INFORMATION
Has Received
Has Had Access
UNPUBLISHED PRICE SENSITIVE INFORMATION
OR
TO
OR
(ii)
is
was
OR
Any Person
Who
(i)
contractual employees and intermediaries
including Consultants
Now Includes
32. may reasonably to have an access to
Unpublished Price Sensitive Information
is a director under section 2(13) of the Companies Act, 1956,
or
deemed to be a director of that company under section 307(10) of the Act
Any Person
Who
Whether TEMPORARY or PERMANENT
Professional relationship
Business relationship
an officer
an employee
OR
occupies the position Involving
or
or
AND
CONNECTED PERSON –As per SEBI (Prohibition of Insider Trading) Regulations, 1992
now
Immediate relatives
33. Main Highlights Related to Connected Person
Now,inthecaseofconnectedpersons,onusofproofhasbeenshiftedfromtheRegulatortosuchconnectedpersonthattheywerenotinpossessionofUnpublishedPriceSensitiveInformation.Thatistosay,now,itwillbeforsuchpersonstoprovethatwhiledoingthetrade,theywerenotinpossessionofanyunpublishedpricesensitiveinformation.
This is in line with the judgment passed in one of the Insider Trading Case being decided in US wherein Driver was guilty of using Price Sensitive Information.
35. PRICE SENSITIVE INFORMATION-AS PER CLAUSE 36 LISTING AGREEMENT
Change in the general character or nature of business.
Disruption of operations due to natural calamity.
Commencement of Commercial Production/ Commercial Operations.
Litigations/ dispute with a material Impact.
Revisions in Ratings.
36. PRICE SENSITIVE INFORMATION-AS PER CLAUSE 36 LISTING AGREEMENT
Anyotherinformationhavingbearingontheoperation/performanceoftheCompanyaswellaspricesensitiveinformationwhichincludesbutnotrestrictedto:
oChange in market lot / sub-division ;
oVoluntary delisting by the company ;
oForfeiture of shares;
oAlteration in terms of any securities ;
oInformation regarding securities issued abroad ;
oCancellation of dividend/ rights/ bonus etc.
37. Deemed Price Sensitive Information as per Stock Exchange Directives
Periodical financial results of the company;
Intended declaration of dividend;
Issue of securities orbuy back of securities;
Major expansion plan OR Execution of new projects;
Amalgamations, merger, takeovers;
Disposal of whole or substantial part of the undertaking;
Changes in policies, plans or operations
38. UNPUBLISHED –As per SEBI(Prohibition of Insider Trading) Regulations, 1992
Informationwhichisnotpublishedbythecompanyoritsagentsandisnotspecificinnature.
Explanation
Speculativereportsinprintorelectronicmediashallnotbeconsideredaspublishedinformation.
As per SEBI’s Board Meeting Decision, it is proposed to link the unpublished Price Sensitive Information with listing agreement thereby widening the ambit of price sensitive information i.e. unpublished would not be considered from Co.’s point of view only but from the securities point of view as well. For eg: Pledge of Shares by Promoters
Taking into account investors’ interest in the securities market and to facilitate legitimate business transactions, advance disclosure of UPSI at least 2 days prior to trading has been made mandatory
NowbyaligningwhatwouldtantamounttoUPSIwiththeListingAgreement,thearenaofUPSIhasbeenmadeinclusive.
39. CHINESE WALL
•"ChineseWall"policydemarcates“insideareas”from"publicareas".
•Thoseareashavingaccesstoconfidentialinformation, considered“insideareas”andareaswhichdealwithsales/marketing/investmentconsidered"publicareas".
•TheemployeesintheinsideareashallnotcommunicateanyPSItoanyoneinpublicarea.
•Inexceptionalcircumstancesemployeesfromthepublicareasmaybebrought"overthewall"andgivenconfidentialinformationonthebasisof"needtoknow" criteria,underintimationtotheCO
40. Introduction of NEED TO KNOW CONCEPT
ClearProhibitiononCommunicationofUPSIexceptforlegitimatepurposes, performanceofdutiesordischargeoflegalobligations
TostrengthentheconceptofCHINESEWALL,thenewconceptof“NEEDTOKNOW”isproposedtobeincludedintheproposedRegulationsonInsiderTrading
42. PRE CLEARANCE OF TRADES
•AllD/O/EoftheCoandtheirdependentsasdefinedbythecompanywhointendtodealinthesecuritiesbeyondalimitshouldpre-clearthetransactions.
•AnapplicationtotheComplianceofficerindicating
•TheestimatednumberofsecuritiesthattheD/O/Eandtheirdependantsintendstodealin,
•Otherdetailsasmayberequiredbyanyrulemadebythecompanyinthisbehalf.
As per SEBI’s Board Meeting Decision, to facilitate bonafide transactions, requirement to formulate trading plans has been casted on the insiders who are in the possession Price Sensitive Information through out the year.
43. Mandatory requirement to formulate pre- scheduled Trading Plans
InsiderswhogeneralpossessUPSIallroundtheyearandwhotradeinthesecurities, arerequiredtoformulateprescheduledtradingplans,tobedulydisclosedtotheStockExchangesandhavetobestrictlyadheredto.Thiswillbeallowedforgenuineandbonafidetransactions.
This is in line with the safeguards introduced by US for insiders….
44. SEBI’s Decision pertaining to Disclosures to be made
TakingintoconsiderationtheinterestofshareholdersatlargeandtoremovetherecurrenceofdisclosureswiththesoleintenttoalignInsiderTradingRegulationswiththeTakeoverRegulations,disclosureofanychangeof2%forpersonsholdingmorethan5%sharesorvotingrightsareproposedtobedispensedwith.
45.
46. G Jayaraman Vs. SEBI [2014] 120CLA78(SAT)
•Mr.Gjayaraman(Appellant)wastheCOandMr.B.RamalingaRajuistheChairmanofSatyam(“thecompany”).
•Insidertradingtransaction:-Mr.B.RamalingaRajucalledappellanttohisresidenceandinformedthatasChairmanofSatyamhewascontemplatingacquisitionoftwocompaniesviz.MaytasPropertiesLimitedandMaytasInfraLimited(UPSI). ThusAppellantasComplianceOfficerofconcernedCompanybeingprivytounpublishedpricesensitiveinformation,oughttohavekepttradingwindowclosed. However,Appellanthadfailedtoclosetradingwindowduringaboveperiod.
TheHon’bleSATheldthat
-ComplianceOfficerwasmandatorilyobligedunderModelCodetokeeptradingwindowclosedwheninpossessionofpricesensitiveinformationspecifiedinpara3.2.3ofModeCode.
-Onceitisfoundthatpersonoccupyinghighrankingpositionhasfailedtocomplywithregulations,thenheisliableforpenalty.Hencepenaltyof5LacimposedbySEBIisjustified
48. Rajiv B. Gandhi, Sandhya R. Gandhi & Amishi B. Gandhi Vs. SEBI [2008] 84 SCL 192(SAT)
•Facts:RajivB.Gandhi(Gandhi)appellantNo.1istheCompanySecretaryandChiefFinancialOfficerofWockhardtLimited(forshortthecompany).SandhyaGandhiappellantNo.2ishiswifeandAmishiGandhi(appellantNo.3)ishissister.
•Insidertradingtransaction:-Theappellantshadsold3600shareson21.1.1999(beforetheboardmeetingheldonApril22,1999at11.30a.mcalledfordemerger)and22.1.1999(inthefirsthalfhourbeforethemarketcouldreacttothenews)onthebasisofunpublishedpricesensitiveinformation.
AOheldthemInsiders&imposedafineofRs5Leach.
TheHon’bleSATheldthat
–Thewords“onthebasisof”aresignificantandmeanthatthetradesexecutedshouldbemotivatedbytheinformationinpossessionoftheinsider
–Factsnecessarytoestablishthecontrarybeingespeciallywithintheknowledgeoftheinsider,theburdenofprovingthosefactsisuponhim.
–SATupheldAO’sorder.
49. Conversion of Listing Agreements into Regulations-
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2014
(LODR)
50. Ambit of Listed Companies as per Companies Act, 2013
A company which has any of its securities listed on any recognized stock exchange.
Meaning thereby
Thecompanyevenifhavingitsdebentures/preferencesharelistedonanyrecognizedstockexchangeisnowdeemedtobeconsideredastheListedCompany.
52. Securities proposed to be covered under LODR??
oSpecifiedSecurities(includingequityandconvertibles)-ListedonMainBoard&SMEPlatform
oNon-ConvertibleDebtSecurities
oNon-ConvertibleRedeemablePreferenceShares
oIndianDepositoryReceipts
oSecuritisedDebtInstruments
oUnitsissuedbyMutualFundsScheme
53. Main Highlights of LODR
oMandatoryfilingonStockExchangesthroughelectronicplatform;
oMandatoryappointmentofCompanySecretaryascomplianceofficerexceptforunitsofMutualFundslistedonStockExchanges;
oIntroductionofconceptoffilingInformationMemorandumonanannualbasis;
oIncorporatingintheproposedRegulations,mandatetoregisterinSCORESforredressalofinvestorgrievances;
oApplicabilityofequitysegmentprovisionsontheentitieswhohaveonlydebtsecuritieslisted.Foreg:FilingofFormBasrequiredtobefiledalongwithAnnualReportonanannualbasis
oNecessitytoexecuteshortenedversionofListingAgreementwithin6monthsofnotificationoftheseregulations.
55. Extant procedure
Formal SCN
Suomotto, Consent applications
OR
This was resulting in delay in conclusion of proceedings and resultant wastage of resources
56. PROPOSED PROCESS OF SETTLEMENT OF ADMINISTRATIVE AND CIVIL PROCEEDINGS
Solution Proposed by SEBI (Well’s Notice) In minor violations, before the issuance of the SCN, an intimation be sent to the Noticee, informing him of the impending enforcement action.
Thus, enabling them to seek settlement of proceedings or make voluntary submissionseven prior to the SCN
The name "Wells notice" is derived from the Wells Committee of the SEC, on the name of its Chairperson, John A. Wells