Securities And Exchange Board Of India
By an Administrative Resolution of the Government on April 12, 1988, the
Securities and Exchange Board of India was established as a non-statutory body
to deal with all matters related to the growth and regulation of the securities
market, as well as the protection of investors, and to advise the Government on
all of these matters. SEBI was given legislative authority and powers by an
Ordinance passed on January 30, 1992. SEBI was established as a statutory
organization on February 21, 1992. The Ordinance was superseded by an Act of
Parliament on April 4, 1992.
The SEBI functions within the legal framework established by the SEBI Act of
The SEBI Act establishes four legislative goals for the SEBI:
- Protection of investors' securities interests
- Encouragement of the growth of the securities market
- Securities market regulation and
- Matters related to and incidental to it.
SEBI, as a regulator, has been making continual attempts to satisfy changing
requirements and accomplish statutory objectives in response to India's
increasing securities industry. SEBI has established transparency and
accountability norms as a result of ongoing efforts.
Need Of SEBI
- We need laws to remedy known market imperfections that create
sub-optimal results and to avert market failures. In the absence of
specialized agency regulation, each market player would conduct its due
diligence before engaging in any market transaction. This has a significant
social cost. Furthermore, rules signal minimal quality standards, which
boosts market trust. Risk-averse investors may abandon the market entirely
if such minimal norms are not conveyed, owing to a recognized asymmetric
information problem. In its most severe version, the market collapses
- Liberalization also triggered the need for a regulatory body. The
abolition of the Capital Issues (Control) Act of 1947 in May 1992 was a
significant deregulation move. With this, the government relinquished
control over the issuance of capital, the pricing of the issues, the
establishment of premia and rates of interest on debentures, and so on, and
the market was free to allocate resources to competing uses.
- A major regulatory initiative was the establishment of a statutory
autonomous agency called SEBI to assure that it is safe to conduct
securities transactions. SEBI created Disclosure and Investor Protection
(DIP) guidelines for the benefit of investors. The rules allow issuers that
meet the qualifying conditions to issue securities at market-determined
rates. The market shifted from merit-based regulation to disclosure-based
Regulations By Sebi:
SEBI had laid down the entry norms for the entities which are making a public
Entry Norms For Public Issue: (generally recognized as Profitability
Route) The Issuer Company shall meet the following requirements:
To give adequate flexibility and to guarantee that genuine companies are not
restricted from raising funds due to rigid constraints, SEBI has created an
alternate path for companies that do not meet any of the above qualifications to
join the primary market, as follows:
- Net Tangible Assets of at least Rs. 3 crores in every of the previous 3
complete years of which now no longer extra than 50% are held in financial
assets. However, the restriction of 50 percent on financial assets shall now no
longer be relevant in case the general public provide is made totally via
providing for sale.
- Minimum of Rs. 15 crores as average pre-tax working earnings in at least 3
of the straight away previous 5 years.
- Net well worth of at least Rs. 1 crore in every of the previous 3 complete
- If the company has modified its call withinside the remaining 12 months, at
least 50% revenue for the previous 1 12 months ought to be from the interest
cautioned with the aid of using the brand new name.
- The aggregate of the proposed problem and all preceding issues made withinside the identical economic 12 months in phrases of problem length does
now no longer exceed 5 instances. the audited balance sheet of the previous
financial 12 months.
Entry Norm Ii (Also Known As The Qib Route)The issue shall be made using the book building route, with at least 75% of the
net offer to the public required to be allocated to Qualified Institutional
Buyers (QIBs). If the minimum subscription of QIBs is not met, the company will
refund the subscription money.
A listed issuer making a Public Offering (I.E. FPO) must meet the following
- If the company's name has been changed during the prior year, at least 50%
of income for the preceding year must come from the activity suggested by
the new name.
- The aggregate issue size of the proposed issue and all previous issues
made in the same fiscal year does not exceed five times its pre-issue net
worth as per the preceding fiscal year's audited balance sheet.
- There is No Entry Norm for a listed company making a Right
Entities Ineligible For Further Public Offer
- If the Board forbids the company, any of its promoters, promoter group, or
directors from gaining access to the capital marketplace;
- If any of the company's promoters or directors is a promoter or every
other firm this is barred from gaining access to the capital market through
- If the issuer or any of its promoters or directors is a willful
defaulter; d) if the company or any of its promoters The restrictions in (a)
and (b) above shall no longer apply to individuals or organizations who were
previously debarred by the Board during the period of debarment.
- General Conditions For IPO:
An issuer making an initial public offering must ensure that:
- It has applied to one or more stock exchanges for in-principle approval to
list its specified securities on such stock exchanges and has designated one
among them as the designated stock exchange;
- It has entered into a contract with a depository for dematerialization
of the specified securities already issued and proposed to be issued,
- All of the promoters' specified securities are dematerialized.
- Each of the promoters' existing partially paid-up equity shares has been
fully paid up or were paid up before the filing of the offer document;
- Unless full disclosures regarding the total number of identified
securities or the amount suggested to be raised from the further issue are
made in such proposal offer document or offer document, as the case may be,
it has made firm plans for finance through provable means for 75% of the
stated means of finance for a particular project document or a refund of
- The amount for general corporate purposes, as specified in the draft
offer document and the offer document, should not exceed 25% of the total
amount raised by the issuer.
Regulations In Respect Of Green Shoe Option
A 'green shoe option' is a business option that may be exercised through a
Stabilizing Agent. It entails allocating shares in excess of those included in
the public offering. Thus, the primary goal of the 'green shoe option is not to
provide additional share capital to the firm, but to act as a stabilizing force
if the issuance is oversubscribed. The promoters' shares are loaned to the
Stabilizing Agent (SA). Such a loan is permitted up to 15% of the issue amount.
After the purpose is completed, these are returned to the promoters. Promoters
make no money from the purchase.
The theory is that because there is an excess supply of shares (up to 15%), the
market price will not skyrocket to unnaturally high levels. If the price of
shares drops below the issue price, SA will acquire shares from the market, so
that the price increases to the appropriate level. If, despite an excess supply
of shares, the price remains higher than the issue price, buying the shares from
the market is out of the question since it will exacerbate the market price.
SEBI Regulations, 2018 in relation to the Green Shoe Option (as modified up to
- An issuer may provide a green shoe option for stabilizing the
post-listing price of its specified securities if the following conditions
- The issuer has been allowed, by resolution, to do so
- The issuer has designated a lead manager as a stabilizing agent in charge of
the price stability procedure;
- The issuer and the stabilizing agency have signed into an agreement
specifying all of the terms and conditions of the green shoe option,
including fees and costs spent by the stabilizing agent in carrying out its
tasks, before submitting the draft offer document.
- Before filing the offer document, the stabilizing agent has entered into an
agreement with the promoters or pre-issue shareholders, or both, for borrowing
specified securities from them by clause (g) of this sub-regulation, specifying
the maximum number of specified securities that may be borrowed for the purpose
of allotment or allocation of specified securities in excess of the issue size
(hereinafter referred to as the "over-allotment"), which agreement specifies the
maximum number of specified securities that may be borrowed.
- Subject to subsection (d), the lead manager shall decide the amount of
specified securities to be over-allocated in the public issuance in
collaboration with the stabilizing agent.
- All mal disclosures concerning the green shoe option stated in Schedule
VI must be included in the draught offer document and offer document.
Other Mandatory Provisions
- Minimum Promoter's Contribution And Lock‐In:
In a public issue by an unlisted
issuer, the promoters shall contribute not less than 20% of the post-issue
capital which should be locked in for a period of 18 months. Lock‐in
indicates a freeze on the shares. The remaining pre-issue capital of the
promoters should also be locked in for a period of 6 months from the date of
listing. In case of public issue by a listed issuer [i.e. FPO], the promoters
shall contribute not less than 20% of the post issue capital or 20% of the issue
- IPO Grading:
An IPO grade is the grade assigned to an initial public offering
(IPO) of equity shares or other convertible securities by a Credit Rating Agency
registered with SEBI. The grade represents a relative assessment of the IPO's
fundamentals in comparison to other listed equity securities. Disclosure of "IPO
Grades" earned is required for firms planning an IPO.
- Unless there are at least 1000 prospective allottees in the public issue, the
corporation cannot issue any shares or convertible instruments.
- Even though the company's shares are not listed, it can apply for a
public issue of convertible securities.
- Post-2022 Amendment:
Limitations for Object of the Issue- If the issuing firm
identifies an object for future inorganic expansion in its offer document but
has not identified an acquisition or investment target, the amount for such
objects and the amount for general corporate purposes shall not exceed 35% of
the total amount offered.
If the proposed acquisition or strategic investment object has been specified
and declared in the offer documents, these constraints will not apply.
Conditions for Offer for Sale by Selling Shareholders- Existing shareholders who
own more than 20% of the pre-issue ownership are not permitted to sell more than
50% of their pre-issue shareholding in an initial public offering ('IPO').
Furthermore, those with less than 20% of the issuer's pre-issue holdings cannot
offer more than 10% of the issuer's share capital.
- Lock-in for Anchor Investors:
Anchor investors must be locked in for a period of 90 days from the date of
allotment for 50% of the shares issued to them. It must continue to be 30
days from the date of allotment for the remaining 50%.
- Lock-in Provisions for Preferential Issue:
The lock-in period for allotment of up to 20% of post-issue paid-up capital
to Promoters or Promoter Group has been reduced to 18 months.
- The lock:
in period for allotments exceeding 20% of post-issue paid-up capital has
been lowered to six months.
- Persons who are not Promoters or members of the Promoter Group:
The lock-in period for allotments has been lowered to six months.
- Glossary of Capital Market ,Securities and Exchange Board of India
Available at: https://www.sebi.gov.in/sebi_data/attachdocs/1292926861775.pdf
, last seen on 8/9/2022
- PART I Policies And Programmes, Securities and Exchange Board of India,
Available at: https://www.sebi.gov.in/sebi_data/commondocs/ar01021_p.pdf
.last seen on 8/9/2022.
- Preamble And Introduction, Securities and Exchange Board of India,
Available at: https://www.sebi.gov.in/sebi_data/commondocs/eoi_p.pdf, last
seen on 9/9/2022.
- A Historical perspective of the securities market, Securities and
Exchange Board of India(March 23, 2004), Available at: https://www.sebi.gov.in/media/speeches/mar-2004/a-historical-perspective-of-the-securities-market-reforms_2882.html,
, last seen on 9/9/2022.
- Supra 8.
- Supra 21.
- S. 5, Securities and Exchange Board Of India (Issue of Capital And
Disclosure Requirements) Regulations, 2018.
- S.7, Securities And Exchange Board Of India (Issue of Capital And
Disclosure Requirements) Regulations, 2018.
- Supra 1.
- SEBI cuts lock-in period for promoters to 18 months post-IPO, The Hindu
(17/8/2021), available at Sebi cuts lock-in period for promoters to 18
months post-IPO - Times of India (indiatimes.com), last seen on 9/9/2022.
- S.16, Securities And Exchange Board Of India (Issue of Capital And
Disclosure Requirements) Regulations, 2018.