Listing timeline

Sebi can proceed gradually to T+3

The Securities and Exchange Board of India (Sebi) recently released a consultation paper “Reduction of timeline for listing of shares in public issue from existing T+6 days to T+3 days”, detailing the proposals for shortening the timeline for public issues. (T is the date of issue closure.) The regulator is of the view that if the process can be shortened to three working-days, it will be of benefit to issuers as well as investors.

The paper notes the inputs of all stakeholders, including stock exchanges, self-certified syndicate banks (SCSBs), sponsor banks, National Payments Corporation of India, depositories, registrars, and so on, have been taken with respect to the proposed reductions. Extensive back-testing and simulations have also been done.

However, stakeholders in the industry believe the new timelines could put pressure on all intermediaries and service providers, such as investment banks, brokerages, registrars, and exchanges. While faster listing would certainly afford benefits such as quicker liquidity, there would also be additional costs in complying with a tighter timeline. The paper details the processes involved in a public issue from the time of application to listing, and it proposes tighter timelines for most of these processes. This would entail every segment of the service providers tightening their own internal processes to meet new deadlines. Multiple steps are involved before a new issue is listed and traded. These are laid out in detail and the regulator has proposed new deadlines for the reduction of three working-days. The paper also lists necessary capacity enhancements (some of which have already been instituted) such as more internet bandwidth, more server capacity, enhancing the Bharat Interface for Money (BHIM) system, and so on.

After the submission of applications and possible modification of bids by investors, these must be processed by SCSBs and intermediaries prior to the issue closure. A scrutiny of applications with respect to third-party investors follows and there is the submission of certificates by SCSBs and sponsor banks confirming the blocking of funds from applications under the applications supported by blocked amount (ASBA) system. This is followed by the lock-in of pre-issue capital and the finalisation and approval of basis of allotment followed by fund transfers and unblocking of ASBA application monies. After this, there is the execution of corporate action for the credit of shares to the allottees, followed by the listing of shares and trading approval and the publishing of an allotment advertisement before trading can commence.

The “paperwork” is electronic but there is a lot of it, and there are handovers from one set of stakeholders to another set as each stage of these processes is completed. Although digitisation can smooth all these processes, there is a lot of coordination required between different sets of stakeholders. For example, SCSBs and intermediaries must hand over to sponsor banks and then to the registrar, before the exchanges are involved. In theory, this is a good proposal, which will benefit both issuers and investors, but a certain amount of friction exists in the processes and, perhaps, the regulator could consider easing into T+3 by way of a gradual reduction of the schedule to T+5 and then to T+4. Or perhaps, this accelerated timeline could be piloted on smaller issues before scaling up.