Friday, September 23, 2011

SEBI notifies the new Takeover Code

SEBI has today notified the new Takeover Code “SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011”. The regulations shall come into force on the 30th day from the date of the notification i.e. from October 22, 2011.

A copy of the new Takeover Code is available here.

Tuesday, September 20, 2011

Former SAT chief C Achuthan passes away

Former Securities Appellate Tribunal chief and Chairman of SEBI's Takeover Regulations Advisory Committee, Mr C Achuthan passed away on Monday. He has made significant contributions to capital market jurisprudence in India.

Read more:

Bar and Bench

Economic Times

Monday, September 19, 2011

SEBI plugs the loophole in insider trading regulations: Promoters to disclose more often

Readers must be aware that under regulation 13(1) of the SEBI (Prohibition of Insider Trading) Regulations, 1992 (PIT Regulations), any person holding more than 5% shares or voting rights of a listed company is required to make an initial disclosure of his holding in terms of PIT Regulations. Under regulation 13(3), such a person is also required to make continuous disclosures about number of shares or voting rights held and any change therein from the last disclosure, if such change exceeds 2% of total shareholding or voting rights in the company. This disclosure is required to be made within two working days of receipt of intimation of allotment of shares or acquisition or sale of shares or voting rights, as the case may be.

Clause 35 of the Equity Listing Agreement, listed companies are inter alia required to make disclosures about the shareholding of promoter and promoter group of such company, on quarterly basis within 21 days from the end of each quarter. The Takeover Code also states that promoter or every person having control over a company is required to disclose the number and percentage of shares or voting rights held by such person(s), within 21 days of financial year ending on 31st March as well as the record date.

Issue

As explained above, under the past regulatory framework, the information about shareholding of promoter and promoter group comes in public domain at the end of each financial year and at the end of each quarter. There was no mechanism in place which ensured that the promoter and persons who are part of promoter group immediately disclosed to the market as and when a change (beyond certain threshold) occurs in their shareholding pattern unless such promoter/ person held more than 5% of the shares of the company (in such a case he would be liable to disclose under 13(1) of the PIT Regulations). Thus any person who is promoter and does not hold more than 5% of the shares of a company was not required to inform immediately any change in his shareholding even when such change is beyond the thresholds specified in PIT Regulations. Thus 'in a given case if shareholding of promoter and promoter group has been disclosed at the end of a quarter at say 40%, and promoter and promoter group is consisting of 10 persons so that none of them is holding more than 5% of the shares then information about any change in the shareholding of the promoter and promoter group comes in public domain within 21 days of the end of the relevant quarter. In such a case all the promoters and persons who are part of promoter group can exit from a company within a quarter without any information to the market regarding such change till the next quarterly filing'.

Amendment

By issuing the SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2011, SEBI has made it mandatory for a promoter or member of promoter group to disclose all changes in their shareholding or voting rights from the immediate previous disclosure made under the PIT Regulations or the Equity Listing Agreement if such change exceeds Rs. 5 lakh in value or 25,000 shares or 1% of total shareholding or voting rights, whichever is lower. This disclosure has to be made within 2 working days of the receipts of intimation of allotment of shares, or the acquisition or sale of shares or voting rights, as the case may be. Also any person who is a promoter or part of promoter group of a listed company should disclose the number of shares or voting rights held by such person, within two working days of becoming such promoter or person belonging to promoter group.

A copy of the SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2011 is available here.

A copy of the SEBI Board minutes in this regard is available here.

Sunday, June 5, 2011

Put/Call Options & Mandatory Buyback are invalid

SEBI's has recently issued an informal guidance stating that a pre-agreed buyback of shares from an investor through put/call option is not legal/valid under the Securities Contracts (Regulation) Act, 1956 ("SCRA"). SEBI has stated that since these options would be exercised on a future date, such transactions would not qualify as spot delivery contracts as defined in section 2(i) of SCRA. These put/call options would not qualify as valid derivative contracts as per section 18A of the SCRA as these are exclusively entered into between two parties and not traded on stock exchanges and settled on the clearing house of the recognised stock exchanges. This informal guidance from SEBI reaffirms the view taken by it in Vedanta-Cairn deal wherein it repudiated the call/put/pre-emptive rights in their share purchase agreement citing its illegality.

Tuesday, April 26, 2011

Repeated buy-back offers not to be encouraged: SEBI

SEBI has in its recent order, allowing the Deccan Chronicle Holdings Limited (“Deccan Chronicle”) to buy-back 3.45 crore shares, stated that “repeated buy-back offers by a company is not something that SEBI, as a regulator, would like to encourage, given the fact that it could be misused by entities to consolidate their holding at the expense of the company”. This was the second time in the last two years that Deccan Chronicle had sought the permission of SEBI for exemption from the requirements of Takeover Code to come out with an offer to buy-back its shares. In July 2009 SEBI had granted Deccan Chronicle exemption from the requirements under the Takeover Code for increasing its voting rights from 63% to 73.51% pursuant to buy-back offer proposed by the target company. Thereafter, the target company had made the buy-back offer during August, 2009, wherein 4.84% of the total voting capital of the target company was bought back. In the present case, the Promoters again sought exemption from the requirements under the Takeover Code for increasing their voting rights from 63.37% to 73.83% (assuming 100% response) pursuant to buy-back offer proposed by the target company. SEBI vide its order dated 15 April 2011 granted Deccan Chronicle Holdings exemption from the requirements under the Takeover Code for the second proposed buy back of shares. However SEBI directed Deccan Chronicle not to seek any further exemption pursuant to any further buy-back offers by the target company. SEBI also stated that repeated buyback offers could be misused by acquires to consolidate their holding at the expense of the company and this is not something that SEBI, as a regulator, would like to encourage.

Wednesday, March 30, 2011

SEBI restricts circulation of unauthenticated news by market intermediaries

Last week SEBI had issued a circular which prevented the circulation of unauthenticated news or rumours by market intermediaries. SEBI noted that market rumours can do considerable damage to the normal functioning and behavior of the market and distort the price discovery mechanisms. Towards this end, SEBI has issued the following directions to the market intermediaries:

New compliances for market intermediaries

1. Market intermediaries should have in place proper internal code of conduct and controls to prevent circulation of unauthenticated news or rumours.

2. Employees of market intermediaries should not encourage or circulate rumours or information obtained without verification.

3. Access of employees of market intermediaries to blogs/chat forums etc. should either be restricted under supervision or access should not be allowed.

4. Logs for any usage of such blogs/chat forums etc. shall be treated as records and the same should be maintained as specified by the respective Regulations which govern the concerned intermediary.

5. Employees should be directed that any market related news received by them either in their official mail/personal mail/ blog or in any other manner, should be forwarded only after the same has been seen and approved by the concerned Intermediary’s Compliance Officer. If an employee fails to do so, he/she shall be deemed to have violated the various provisions contained in SEBI Act/Rules/Regulations etc. and shall be liable for actions. The Compliance Officer shall also be held liable for breach of duty in this regard.

Challenges

1. The new direction from SEBI seeks to restrict circulation of rumours or unauthenticated news by market intermediaries i.e. the SEBI registered intermediaries like a stock broker or a portfolio manager. However, in many cases the sources of unauthenticated news or rumours are not SEBI registered intermediaries but private persons giving stock advice or websites, forums, blogs etc. managed by entities other than SEBI registered market intermediaries. Thus the new direction from SEBI has failed to address the threats posed by private persons or blogs and forums managed by entities other than SEBI registered market intermediaries.

2. SEBI has mandated that any market related news received by employees of market intermediaries, should be forwarded by the employee only after the same has been seen and approved by the concerned Intermediary’s Compliance Officer. However, it is difficult for Market Intermediaries having large number of employees to implement the same. Also it is difficult for any entity to monitor all the online activities of their employees like emails, chats, blog posts, forum posts etc.

Tuesday, March 22, 2011

Listing Agreement for Securitized Debt Instruments

Last week SEBI had issued the listing agreement for securitized debt instruments. The listing agreement provides for disclosure of pool level, tranche level and select loan level information. The listing agreement comes into force with immediate effect for all securitised debt instruments as defined under regulation 2(1)(s) of the Securities and Exchange Board of India (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008, seeking listing on the stock exchange. Readers may recall that in October last year SEBI had issued the draft listing agreement for securitized debt instruments for public comments/ suggestions.