The 10 point Times New Roman solution for investor protection

When you buy a car, do you usually go and check it out at the showroom? You choose a company, a model, a colour, the add-ons and gizmos and finally you test-drive it. You touch, feel and see it. But how do you buy a public offer of equity? You can’t see it, or feel it or touch it, it does not physically exist. Hence the need for something called an ‘Offer Document’ that seeks to describe in detail all material information that you need to buy this product. A good Offer Document should be able to answer all questions that an investor may have. No wonder that such documents are thick books. But what finally comes to an investor is a thin sheet of paper with tightly packed information squeezed in a 4 point print. To understand how tiny this is, you need to understand that what you are reading right now is 9 point size. The tiny print size defeats the whole purpose of an Offer Document. To make an investment decision based on that scrap of paper is like buying a car after you’ve seen a fleeting ad on TV.

The Malegam Committee Report on Disclosure Requirements in Offer Documents, that is up on the Sebi webstite (www.sebi.gov.in) for public comments, seeks to rectify anomalies such as this. You may not actually go and read this report, but once implemented, it is going to radically change the way an IPO prospectus and form appears. For starters, you will get the relevant information in a more readable form, in a 10 point print size instead of four! Says capital market expert Prithvi Haldea, Malegam Committee Member, “We have tried to change the quality, quantity, order and point size of the offer document to enable the investor to make an informed decision about what he buys.”

Another change envisaged by the Committee is to bring the Promoter information upfront since this is the first information that any investor seeks. The fact that the Tatas promote TCS is one of the key points that an investor will consider before buying into the TCS issue.

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The Committee felt that one of the problems with IPOs was that there was nobody responsible for the correctness of data and information in the offer document. The Committee’s recommendation that the Directors of the company sign the offer document making them legally responsible for the correctness of the data in the Offer Document has already been accepted by the Sebi.

The Committee has also made attempts to rationalise the information in the Offer Document. For example, it found that different units of measurement were being used in the same offer document. This can be misused by a company that seeks to confuse the investor between Rs million, lakh and crore. The Committee’s recommendation that only one standard unit be used throughout one offer document has also been accepted.

There is much more in the 326 page document that will put the information you need to make an investment in your hands. Now whether you read the Offer Document or not, or still prefer to invest after watching glitzy ads on TV, is upto you.