Any measure aimed at increasing the number of shares available for public trading enhances liquidity and depth of the stock market and is desirable. In that sense, the amendment to the Securities Contracts (Regulation) Rules 1957 (SCRR) by the central government to provide for a minimum 25 per cent threshold level of public holding for all listed companies is a very welcome move. The use of the words “all listed companies” is to say the least heartening. The presumption is that the word “all” would imply that there will be no exemption to any one. The earlier dispensation of rule 19 2(B) of the SCRR, however, has much the same intent. But the practical difficulties have bedevilled its implementation all these years. Sometimes, the primary market has been lacklustre and it was apprehended that public issues of companies with large equity base will not be subscribed; the government chose to allocate less than 10 per cent of the capital of public sector enterprises for disinvestment, so these companies had to be listed with less than the threshold of public holding requirement. The sale of shares in case of the banks had a different threshold of public holding. The Rule had necessarily to carve out exceptions to meet these circumstances. The delisting guidelines compounded the situation further. The implementation of the Rule concerned was always bumpy. The market regulator and the administrative ministry are well aware of these developments. It is assumed that they have taken lessons from the past and will be able to ensure the smooth implementation of the Rule now.
For not much has happened in the securities market now to suggest that the conditions have altered radically to assure that the past impediments have disappeared. The primary market conditions do not enthuse the retail investor. Compliance with the Rule will happen either by fresh issue of shares or by offers for sale. Will the primary market be in a position to absorb the additional issue or sale of shares? Will the same government which has amended the SCRR agree to allow disinvestment in Central Public Sector Enterprises to meet the minimum threshold levels of public holding? Will the government and RBI allow the banks to disinvest to meet the threshold requirements? The amendment to the Rule gives a timetable of five years. Will the stock exchanges be able to monitor public holding all along the period? What are the consequences of non-compliance? Delisting? Delisting has not been easy and will not be accepted of a company with a good valuation? Above all, there will be many who would be interested in pushing up prices assuming that some companies would be delisted. The pricing of the issues will depend on market conditions and may lead to delay in the offers for sale. There is the possibility of market manipulation. Will the authorities be always vigilant to check market abuse? The present amendment itself leaves room for diverging interpretation. In the past, implementation of the Rule was hamstrung by complications and ambiguities which resulted — some genuine and some deliberate. A policy or strategy is as good as its implementation. The stock exchanges and the regulator will have to ensure a smooth and successful implementation of the Rule. That will not be easy.