The Securities and Exchange Board of India plans to reduce the number of publicly listed companies in the country by providing an exit option to investors in companies whose stocks are listed on regional exchanges and on stocks which have not been traded for seven years or more as part of a set of measures which the capital market regulator wants to implement this fiscal.
The proposal envisages promoters of over 3,000 companies offering an exit option to investors. These firms include those listed exclusively on regional stock exchanges and 1,200 odd companies whose shares have been suspended for over seven years on either the BSE or the NSE. The exit will be at fair value which will be determined by a third party valuer appointed by the bourses.
Promoters who do not co-operate with the regulator or fail to provide an exit option to investors could face the prospect of being barred from raising funds from the capital market or from taking up board positions.
This move will help clean up the system and help eliminate a source of mischief, Sebi chairman UK Sinha said on Wednesday. Sinha said that by using powers granted to Sebi after the last amendment to its statute in 2014, the regulator could be in a position to get rid of many shell companies which were being used by promoters and market operators to manipulate stocks. It will help ease the regulatory burden.
India perhaps has one of the highest number of listed firms in the world which are listed on regional exchanges and whose shares are hardly traded and also several on the national exchanges which are thinly traded.
Stricter enforcement and monitoring of compliance by companies and intermediaries, an overhaul of the regulator’s arbitration mechanism, oversight of gatekeepers and tighter regulations on high frequency trading or algorithim trades, strengthening cyber security besides opening the new campus of the National Institute of Securities Management or NISM feature in the plans for 2016-17, Sinha added.
Sinha said that after adopting a hands-off approach for long, Sebi has now decided to hold gatekeepers such as auditors accountable in cases where it has been found that they have also been a party to falsification of accounts. The Sebi Act empowers the regulator to do this. Sebi also plans to play a direct role in selecting an arbitrator in dispute cases and to raise the number of arbitration centres in the country. Strengthening the regulations relating to high frequency trading is also on the anvil. The regulator has consulted its technical advisory committee on this and plans to bar manipulative strategies.
On the recent tightening of rules on Participatory Notes or derivative instruments, Sinha said that it followed consultations with overseas investors and the regulator is now in a position to obtain information on the identity of the final holder or investor, which was a concern earlier.
Stating that the rules have been tightened again on suggestions of the Supreme Court-appointed SIT on black money, Sinha said there are more than 8,000 FPIs registered in India but only 39 of them are issuing Offshore Derivative Instruments (ODIs).
Activity in the primary market, mutual funds and the corporate bond market have all picked up as reflected in the numbers in FY16, he said.
The NISM which is coming up on a new campus in Panvel will be inaugurated by Prime Minister Narendra Modi.