Security and Exchange Boards of India(SEBI) is considering to scrap its idea of separate listing platform for tech based startups. Instead, it is planning to work on a more relaxed framework to allow startups to trade on regular stock exchange platforms.
According to a report in Livemint, primary market advisory committee (PMAC) of SEBI has asked it to give up on the idea of alternate trading platform. Instead, it has suggested SEBI to make changes in the regular framework for startups to trade on regular stock exchange.
Under this proposed framework, technology-based companies, with less onerous listing requirements, could list directly on the main board of stock exchanges. ebi has been informed that the market could see four-six listings in six months if the regulations are amended accordingly,
said a person familiar with the matter.
SEBI may see four-six listings in six months if it amends its regulations according to suggestions.
Last year, SEBI had introduced an alternate listing platform for startups called ‘Institutional Trading Platform (ITP). The initiative allows startups to list themselves on trading platform and raise funds from institutional investors. It also provides an easy exit options to investors.
However, the program failed to attract startups and did not take off even after an year of its announcement. This is reportedly due to high listing requirements of SEBI from new tech based startups.
For instance, it allowed only two categories of investors to invest in the platform. Institutional investors (with net worth of more than 500 crore) and second were non-institutional investors other than retail individual investors.
Moreover, it did not allow trading on less than 10 lakhs listing and new startups were not willing to go for trading at such high rate. It also made it mandatory for startups to issue 75% of the public shares to qualified institutional buyers (QIBs). It also required a minimum of 200 investors on the platform.
Suggested changes in the framework
In response to suggestions by industry, the panel has recommended SEBI to reduce minimum trading lot to 5 lakh in first year post-listing, thereafter making it 1 lakh. It has also suggested to bring down the minimum number of required investors from 200 to 50 and QIB issue size from 75% to 50%.
PMAC also suggested SEBI to make it easier for startups to trade on regular stock exchange platforms. For that purpose, startups need not comply with Issue of Capital and Disclosure Requirements (ICDR)like other listed companies.
Instead, they will need to follow diluted version of the listing guidelines similar to proposed alternate trading platform. After three years, they would need to become compliant with the ICDR guidelines.
The whole idea of the proposal is to ensure listing for these new-age firms acts as a fund-raising platform with the option of a formal listing at a later stage. This could help them meet their initial funding needs with less onerous regulatory requirements.
said the persons familiar with the matter.
Only time will tell if these new changes, if implemented, would prove enough to attract startups and investors towards trading on stock exchange platforms. However, considering how difficult it is for startups to build trust on their business models (Infibeam’s bumpy IPO execution is an example) for shareholders and investment advisors alike, this new bet from SEBI might turn out to be a tough one.