The Securities and Exchange Board of India (Sebi) on Thursday proposed to introduce e-trading in rights issues. The move will enable demat account holders to buy and renounce the rights entitlements (REs) on the stock exchanges.
The proposed procedure was laid out on the Sebi website on Thursday and the regulator has invited public comments till September 25.
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According to the Sebi format, shareholder who do not want to subscribe to the rights issue can sell his REs on the electronic trading platform of the stocks exchanges. REs would be given a different International Securities Identification Number (ISIN) to separate them from the ordinary shares of the particular company.
However, trading in REs would close three working days prior to the closure of rights issues, in order to avoid last minute rush in submitting applications and to ensure that the beneficial owners have sufficient time to submit an application form, said Sebi in its proposal.
Prior to this, REs were traded in the physical form and could not be regulated. Prithvi Haldea, MD, Prime Database, a firm tracking primary markets and rights issues, said: “There is hardly any market for entitlements. Once the e-trading gets activated it will add liquidity to the entitlements as many buyers would come forward.”
This would mean additional income for stock exchanges and stock brokers, say market players.
The proposed e-trading is part of Sebi chairman C B Bhave’s move to fast track the rights issue process. Bhave had said that he would cut down the rights issue duration from 109 days to 43 days to reduce the market risk faced by investors and issuers.
