IPO Investing

Regulations for IPOs


Because of the public participation, SEBI oversees that such companies act in a reasonable and fair manner, especially with reference to the minority shareholders. For example, such companies should have a board of directors, where at least half the members are independent of the promoters/company. Moreover, companies have to comply with SEBI (Issue of Capital & Disclosure requirements) Regulations, 2009 and the listing agreement, which among other things, stipulate continuing disclosures in specified formats and frequency. 


SEBI’s Role in IPOs/FPOs

Any company making a public issue or a rights issue of securities of value more than Rs 50 lakh is required to file a draft offer document with SEBI for its observations. The validity period of SEBI’s observation letter is twelve months only i.e. the company has to open its issue within the period of twelve months starting from the date of issuing the observation letter.

There is no requirement of filing any offer document / notice to SEBI in case of preferential allotment and Qualified Institution Placement (QIP). In QIP, Merchant Banker handling the issue has to file the placement document with Stock Exchanges for making the same available on their websites.

Given below are few clarifications regarding the role played by SEBI:


(a) Till the early nineties, Controller of Capital Issues used to decide about entry of company in the market and also about the price at which securities should be offered to public. However, following the introduction of disclosure based regime under the aegis of SEBI, companies can now determine issue price of securities freely without any regulatory interference, with the flexibility to take advantage of market forces.

(b) The primary issuances are governed by SEBI in terms of SEBI (ICDR) Regulations, 2009. SEBI framed its Disclosures and Investor Protection (DIP) guidelines initially for public offerings which were later converted into Regulations i.e. in 2009 by way of ICDR Regulations. The SEBI DIP Guidelines, and subsequently ICDR Regulations, over the years have gone through many amendments in keeping pace with the dynamic market scenario. It provides a comprehensive framework for issuing of securities by the companies.

(c) Before a company approaches the primary market to raise money by the fresh issuance of securities it has to make sure that it is in compliance with all the requirements of SEBI (ICDR) Regulations, 2009. The Merchant Banker are those specialised intermediaries registered with SEBI, who perform the due diligence and ensures compliance with ICDR Regulations before the document is filed with SEBI.

(d) Officials of SEBI at various levels examine the compliance with ICDR Regulations and ensure that all necessary material information is disclosed in the draft offer documents.

(e) Draft offer document in respect of issues of size upto Rs. 100 crore shall be filed with the concerned regional office of the Board under the jurisdiction of which the registered office of the issuer company falls.


Does it mean that SEBI recommends an issue? 

SEBI does not recommend any issue nor does take any responsibility either for the financial soundness of any scheme or the project for which the issue is proposed to be made or for the correctness of the statements made or opinions expressed in the offer document. 

Does SEBI approve the contents of the offer document? 

Submission of offer document to SEBI should not in any way be deemed or construed that the same has been cleared or approved by SEBI. The Lead manager certifies that the disclosures made in the offer document are generally adequate and are in conformity with SEBI guidelines for disclosures and investor protection in force for the time being. This requirement is to facilitate investors to take an informed decision for making investment in the proposed issue.

Does the SEBI clearance tag make the IPO/FPO safe for the investors?

The investors should make an informed decision purely by themselves based on the contents disclosed in the offer documents. SEBI does not associate itself with any issue/issuer and should in no way be construed as a guarantee for the funds that the investor proposes to invest through the issue. However, the investors are generally advised to study all the material facts pertaining to the issue including the risk factors before considering any investment.


 

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Disclaimer:

Information provided herein is purely for dissemination of information and creating awareness among the investors about various aspects of investing. Although due care and diligence has been taken, the Institute of Company Secretaries of India (ICSI) shall not be responsible for any loss or damage resulting from any action taken by a person on the basis of the contents hosted on the website. It may also be noted that laws/regulations governing the markets are continuously evolving, hence an investor should familiarize himself with the latest laws/ regulations by visiting the relevant websites or contacting the relevant regulatory body.