Open offers and insider trading issues addressed
The SEBI Board meeting has become an important forum for the regulator to give direction to markets. The last SEBI Board meeting during the week had some important takeaways.
In the past, floor price for preferential issue was fixed at the average of 2 weeks price and 26 weeks price. Now SEBI has sought to amend that and reduce the time period from 26 weeks to just about 12 weeks. This reduced time frame will ensure that there is a greater weightage to the more recent price and that is a better benchmark at a time when the stock market prices can be so volatile. Of course, the lock-in period of 3 years on such preferential allotments shall continue to apply under the new preferential price formula too.
Takeover code changes
SEBI has now permitted acquisition of shares via the bulk / block deals mode during the open offer. There are also some changes to indirect acquisition of shares. In such cases, the bidder will have to deposit 100% of the total consideration payable into an escrow account before making the public announcement of the same. This will prevent the practice of playing prices on information flows. Any commission or omission will entail an interest of 10% to shareholders who have tendered their shares in the open offer.
Open offer in NCLT cases
This has been a bone of contention for acquirers looking to buy companies via the NCLT route. There was no clarity on whether such acquirers will have to make an open offer to the remaining shareholders to buy another 20% of the company. Most acquirers under the NCLT found this rule to be unfair as it forced a steeply higher financial burden on these acquirers. Exemption from open offers had been given to select PSUs but there was no standard rule. SEBI has clarified that any acquisition of stressed companies made under the NCLT shall not require an open offer to be made to the remaining shareholders. This will make the NCLT process a lot more attractive for potential buyers.
Insider trading database
This is likely to be significant step towards greater transparency. Now all companies will be required to maintain a detailed digital database containing the nature of unpublished price sensitive information and the names of persons having access to such information. Any sharing of information at different points of time will have to be documented in detail in the database. This will largely automate the entire process of insider trading regulation implementation and reporting to stock exchanges. This is likely to be a big boost to offering better transparency and disclosure for the company shareholders.
Targeted Keyword – SEBI Board Meeting, Digital Database, NCLT cases, Insider Trading Database