Daily Current Affairs : 28-July-2023
The Securities and Exchange Board of India (SEBI) is currently engaged in a comprehensive review of delisting norms for companies that opt for delisting from the stock exchanges. Delisting refers to the removal of a listed company’s securities from a stock exchange, prohibiting further trading of those securities on the exchange. The primary aim of the review is to address concerns regarding the price discovery process and prevent potential misuse by certain market participants. This essay explores the concept of delisting, the reverse book-building process, SEBI’s concerns, and the potential way ahead for enhancing the delisting mechanism.
Understanding Delisting of Securities
Delisting occurs when a company decides to withdraw its securities from a stock exchange. The delisted securities can no longer be bought or sold on the exchange, limiting investors’ ability to trade those shares. Delisting can be voluntary, where the company decides to remove its securities on its own accord, or it can be compulsory, imposed as a penalty for non-compliance with listing agreement requirements and failure to make submissions within prescribed timeframes.
The Reverse Book-Building Process
The process of determining the price for delisting, known as the reverse book-building process, plays a crucial role in the delisting mechanism. During this process, shareholders submit their offers at various prices, which must be equal to or higher than the floor price. The floor price is the minimum price set for the delisting offer. After the offer closing, the buyback price is determined based on the collected offers.
SEBI’s Concerns and Rationale for Review
SEBI has expressed concerns regarding certain market constituents who may manipulate share prices in anticipation of delisting, artificially inflating the share value to unsustainable levels. The current formulation of the reverse book-building process, along with the 90% buyback threshold, leaves room for potential misuse by specialized operators adept in delisting activities.
Proposed Changes and the Way Ahead
To address these concerns and create a more transparent and fair delisting process, SEBI is considering potential changes to the existing norms. Some of the proposed modifications include:
- Fixed Price Delisting Offer: SEBI may allow companies to opt for a fixed price offer instead of relying on the reverse book-building mechanism. By setting a fixed price, companies can ensure a more straightforward and less susceptible process, reducing the scope for price manipulation.
- Holistic Review: Delisting involves multiple aspects, such as minority shareholder consent and reaching the 90% shareholding threshold. SEBI acknowledges the need to review all these aspects holistically to streamline the process and make it more accessible to companies seeking delisting.
- Advisory Committee Formation: SEBI has set up an advisory committee under the leadership of Keki Mistry to thoroughly reassess the existing delisting regulations. This committee will explore potential improvements and recommend changes to enhance the overall delisting mechanism.
Important Points:
- Delisting refers to removing a company’s securities from a stock exchange, making them no longer tradable on the exchange.
- Delisting can be voluntary (company’s decision) or compulsory (penalty for non-compliance).
- The reverse book-building process is used for price discovery during delisting.
- SEBI is concerned about potential market manipulation and misuse during delisting.
- SEBI is considering allowing fixed price delisting offers instead of reverse book-building.
- A holistic review is needed to simplify the delisting process, including minority shareholder consent and shareholding thresholds.
- An advisory committee under Keki Mistry is formed by SEBI to relook at delisting regulations.
Why In News
As part of their ongoing review, the Securities and Exchange Board of India (SEBI) is considering potential revisions to the delisting norms, aiming to ensure a transparent and fair process for companies choosing to delist from the stock exchanges. The proposed modifications seek to strike a balance between safeguarding investor interests and facilitating a smoother delisting procedure for companies in compliance with regulatory requirements.
MCQs about SEBI’s Delisting Norms Review
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What does delisting of securities mean?
A. Adding securities to a stock exchange for trading.
B. Removing securities from a stock exchange, making them no longer tradable.
C. Increasing the number of shares of a listed company.
D. Making securities available for public subscription.
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Which process is used for price discovery during delisting?
A. Book-building process.
B. Reverse book-building process.
C. Trading on the open market.
D. Private negotiations with shareholders.
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What is the main concern of SEBI regarding the delisting process?
A. Potential market manipulation during listing.
B. Inadequate disclosure by companies during delisting.
C. Misuse of the reverse book-building process by certain market participants.
D. Lack of investor interest in delisting offers.
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What is the potential change that SEBI is considering for delisting offers?
A. Allowing companies to delist without buying back shares.
B. Requiring companies to undergo an IPO before delisting.
C. Allowing companies to delist through a fixed price offer.
D. Increasing the minimum threshold for delisting to 95%.
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