In a significant move to enhance ease of doing business, the Securities and Exchange Board of India (Sebi) has abolished the mandatory 1% security deposit requirement for public issues. This decision, aimed at simplifying processes for issuer companies, is effective immediately, as per Sebi’s circular issued on Thursday.
Previous Requirement
Before the change, companies launching public issues of equity shares were required to deposit 1% of the issue size with the designated stock exchanges. The deposit served as a security measure and was returned to the company after the completion of the public issue.
Reason for Change
Sebi introduced the reform considering the improved regulatory framework and technological advancements in the public issue process, including:
- ASBA (Application Supported by Blocked Amount): Ensures that application funds remain blocked in the investor’s bank account until allotment, reducing refund-related issues.
- UPI Mode of Payment: Streamlines payment processes.
- Mandatory Demat Allotments: Eliminates concerns around physical share certificates.
The regulator highlighted that these measures mitigate post-issue investor complaints, such as refund delays and non-dispatch of securities, which originally necessitated the deposit.
Background
Sebi had floated a consultation paper in February proposing the abolition of the 1% security deposit. The proposal received support, given the robust mechanisms now in place to address investor grievances effectively.
Implications
- For Issuers: The removal of the deposit lowers the financial burden and simplifies the public issue process.
- For Investors: Strengthened safeguards via the modern framework ensure better protection without the need for the deposit.
This move aligns with Sebi’s continued efforts to make capital markets more accessible and efficient for businesses and investors alike.
