The Securities and Exchange Board of India (Sebi) is considering amendments to regulations with regard to pledging of shares by promoters of listed firms to include their holding companies too.
Sebi Chairman C B Bhave today said that the regulator was examining if promoters can be asked to disclose pledging of a holding company shares with banks and non-banking finance companies (NBFCs).
“Following Sebi’s earlier directive for disclosure of pledged shares of listed companies to investors, we are now considering if the regulations can be amended in cases where the promoters have pledged shares of the holding company too,” Bhave said. He was addressing a conference organised by the Indian Merchants’ Chamber here.
In the aftermath of the Satyam Computers fiasco in January, Sebi had mandated that promoters of listed companies disclose the amount of shares they had pledged. The shares of holding companies were, however, kept out of the purview of this guideline as holding companies were not listed on exchanges.
Disclosing information about shares of holding companies involves the risk of divulging vital information about the monetary value of their shares and the firm’s holding pattern in subsidiary firms that are listed. Any fall in the valuation of shares of holding companies, if pledged, would result in lenders asking the promoters to top up their margins. If in case the promoters fail to do so, the lenders may sell the pledged shares to recover their dues.
This raises the hazard of effecting a change in ownership, and the market regulator has received representations that such risks need to be communicated to investors. Sebi is currently examining possibilities and consequences of any such amendment. The issue is quite complex as holding companies are generally unlisted and, hence, don’t fall under Sebi’s purview.
Meanwhile, in another development, the Sebi chief revealed that MCX, through its stock exchange arm trading in currency futures, has sought the regulator’s approval for initiating trading in equities and F&O. Currently, only the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) facilitate trading in these securities, while MCX primarily trades in commodities.
However, Bhave did not give any timeframe for when MCX could be permitted to enter equities and derivatives segments. He said that the regulator was also examining the possibilities of shifting to a physical delivery settlement system in the derivatives segment from the present cash settlement.
Raising concerns over the ongoing downturn in equities market and troubles in capital-raising by Indian corporates, Bhave said, “Our secondary market settlement system is one of the most effective in the world. The process of primary market reforms is underway, and we will continue to take it forward though the primary market is relatively less active at the moment.”
