Suspension of companies from trading by stock exchanges is an ‘extreme step’, said U K Sinha, chairman, Securities and Exchange Board of India (Sebi), but needed at times.
Yesterday, the National Stock Exchange (NSE) had announced suspension of trading in Hyderabad-based media company Deccan Chronicle Holdings with effect from January 23, after the company failed to provide shareholding and financial information.
While declining to comment on this decision, Sinha said, “It is a very difficult situation when a company’s trading is suspended. How long the suspension should continue, what further measures should be taken depends upon different cases.”
Non-compliance of norms in the listing agreement, such as failure to file shareholding data or financial results for successive quarters can trigger suspension from the bourses.
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Sinha said exchanges have their own concerns and responsibilities in suspending a particular company from trading. “Stock exchanges have their own corporate governance norms and rules. Unless those rules are so widely different that it affects the interest of the investors, we would not like to interfere with stock exchange regulations,” the Sebi chief said on the sidelines of the Financial Planning Congress 2012-13 here.
He said there was a need to find ways to safeguard the interest of small shareholders and one can take “a case by case approach”.
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Currently, a little over 200 companies have been put on the suspended list by both NSE and the Bombay Stock Exchange for non-compliance issues. It is estimated that at least Rs 50,000 crore of investor wealth has been blocked in these suspended companies.
“It (suspension) is also being done keeping in mind that if the trading is allowed to be continued, there will be further harm done to minority shareholders,” Sinha said.
Lawyers believe suspension of companies from trading is against the interests of minority shareholders and there has to be a review of the norms.
“Suspension from trading is a wrong step, as you are taking away the exit option of minority shareholders. Action should be taken against individuals thrusted with the responsibility of compliance,” said Sandeep Parekh, founder of Finsec Law Advisors.
“When the stock exchanges are of the view that material non-compliances of the listing agreement by any company affects the price formation, they can exercise their rights. In such cases, the public shareholders will have to take recourse to Sebi. Sebi may look at the corporate governance issues as well,” says P R Ramesh, senior consultant, Economic Laws Practice.
Takeover regulations
Sinha said Sebi plans a review of the new takeover code regulation, introduced in October 2011, in the next couple of months.
“When we implemented the code, we said it will be reviewed after one year. We have started looking at the implementation of the revised regulations,” he said. The revision, he said, would also be based on industry feedback.
Lawyers said the regulator might not announce widespread changes to the code. Under the changes, the open offer trigger was increased from 15 per cent to 25 per cent, while the open offer size was raised to 26 per cent from 20 per cent in the previous code.
Sahara
When asked about the decision to put on hold the appointment of an ‘in-person’ verification agency to ascertaining investors of the Sahara bond scheme, Sinha said “We are very serious that some good and reliable agencies come forward. We didn’t have enough confidence in some of the agencies.”
OFS
Sinha also said Sebi would very soon ‘simplify’ existing share sale avenues such as the offer for sale (OFS) meant for meeting the public shareholding requirement. At its board meeting on Friday, the regulator is expected to announce changes to the OFS regulations, which could include lower margin requirement and greater transparency in the bidding process.