NIRC News July 2011.pmd - Icsi

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Article A: The Indian SME Exchange has been formulated after detailed study of the best SME Exchanges across the world and taking into account the feedback from the market participants. Q: How the SME Exchange is different from the OTCEI Exchange? A: The concept of SME Exchange wise very much similar to the OTCEI Exchange. However, OTCEI was far ahead of its time. It has launched screen based trading with depository concept which at that point of time was new to the market intermediaries and they were not so much equipped to adopt to the OTCEI model. During the last two decades, the capital market has matured and adopted well the changes brought by the regulators and exchanges, viz online trading, rolling settlement and depositories. At the same time, the financial institutions, venture capitalists, Bank SME divisions, institutional investors, QIBs, and HNIs have started investing in the SMEs in a big way. This has created conducive environment for raising of the equity capital by the SMEs and thus we are well positioned to successfully launch the SME Platform. Q: What are the simplifications to compliance norms on the SME Exchange? A: SEBI has made amendments in the ICDR Regulations simplifying the compliance norms for SMEs listed on the SME Exchange. The chapter XA has been introduced which states the guidelines for the SME Exchange/ Platform. The salient features are: • Financial results shall be submitted on half yearly basis instead on quarterly basis. • SMEs need not publish their financial results, as required in main board, and they can make it available on their website. • SMEs can send the abridged version of the annual report of few pages with the details of the profit & loss account and balance sheet to the shareholders instead of sending full annual report. Q: Whether the norms on profit making for 3 out of 5 years on the main board are applicable to the SMEs?. A: The SMEs have been exempted from the criteria of three years profit making track record (profit in 3 out of 5 years) for listing on SME Exchange. Any company with one or two years of good track record can consider listing on SME Exchange. Q: What is the minimum dilution the SMEs need to do for listing on SME Exchange?. A: As per ICDR Regulations, the company with the IPO has to offer a minimum of 25% to the investors and some exemptions have been given for the finance companies. Q: Which merchant bankers can bring the IPO on the SME Exchange? A: All the Merchant bankers empanelled by the SEBI can bring the IPO on SME Exchange. Q: Whether there will be any changes to the Offer Document? A: There is no need to file the DRHP and RHP is sufficient. The Offer Document of the SME Exchange will be on the same lines as that of the main board, but condensed one. In addition, the Offer Document will also include the agreement between the merchant banker and the market maker as well as the agreement between the merchant banker and the nominated investors. The model listing agreement has been notified vide the SEBI Circular dated 17 th May, 2010 for the SME segment. The check list for the Offer Document will be published by the SME Exchange on its website, once the final approval of the SEBI is received. This will help the merchant bankers in preparing the Offer Document. Q: What kind of preparedness is required before getting listed on BSE SME? A: Some of the steps necessary for the preparation for the listing on the BSE SME Platform are as follows: • Keeping the Annual Reports on accounts ready • Documenting the Past performance • Due diligence on the applicability of various regulations • Due Diligence on the various approvals required from regulatory bodies • Documenting the Risk factors associated with the company • Documenting the External environment effecting the company • Listing out the litigations, its magnitude and ramifications • Documenting the Business activity • Documenting the Material contracts and agreements • Detailed report on promoters & management • Selection of investment banker • Selection of registrar and transfer agent (RTA) • Selection of syndicate member /sub- syndicate members • Selection of electronic media and advertising agency • Selection of Escrow Bankers The IPO is all about: • Effective equity story supplemented by proper research • Presentation to the investors and the analysts • Regular interaction with Member brokers / sub brokers, CAs, CSs, FIs. • Positioning of company through sustained media efforts including visual media • Selection of potential bidding centers • Creating sustainable valuation and shareholder base July, 2011 6 NIRC-ICSI Newsletter
Article • Effective communication for better results Q: What are the additional responsibilities of Merchant bankers in SME Exchange? A: The Merchant Bankers in the main board assist the company in raising equity capital through primary record, but in the SME Platform the Merchant Bankers’ have to hand hold the company for 3 years and ensure that there is continuity in market making. The other additional responsibility is that the issue should be 100% underwritten and the merchant banker has to compulsory underwrite 15% in his own book of accounts. There is need for syndication for the purpose of under writing and the responsibility lies with the merchant banker. There is no such responsibility for the merchant banker on the main board. Q: Who can be the Members of the SME Exchange?. A: All the members of the equity (cash) segment of the BSE main board are by default the members of the BSE SME Exchange also. Q: Who can be the market makers in the SME Platform? A: Only the Members of the stock exchanges recognized by the SEBI can act as a market maker. The members desirous of becoming market maker have to get themselves registered as market maker with the exchange by filing the registration form. These members should have a minimum experience of 3 years, minimum net worth of Rs. 5 crores and a daily turn over of Rs. 10 crores. The market maker shall have additional net worth of Rs. 2 crores for additional scrip. Q: How does the Market Making work? A: Market Making is an activity where the Member Brokers registered as market makers will undertake to support the scrip by providing two way quotes. All the market makers in a scrip will provide 2-way quotes for 75% of the time in a trading day. The market makers will have to hold 5% of the specified security to be listed at the time of allotment in their inventory to do the market making. In addition to this, the market makers can also buy from or sell to the nominated investors the required shares for market making. The merchant banker and nominated investor need to enter into an agreement in this regard. Q: Who can be the Nominated Investors? A: The nominated investors can be QIBs and PE Firms who are registered with the respective Regulator. Q: What is the rationale of keeping the lot size of one lakh rupees?. A: The lot size of one lakh rupees is kept, so that only the informed investors can invest in these companies. Q: What is the provision on odd lots? A: Odd lots may get created because of the corporate action taken by the company from time to time, like issuing bonus shares, warrants and rights issues. The Regulations warrants that the odd lots can be sold only to market makers and the investor has to give the declaration that he is selling all the odd lot shares of the particular scrip. This is to minimize the odd lots in the system. Q: Whether the BSE SME Exchange is quote driven or hybrid? A: BSE SME Platform will be a hybrid system i.e. a combination of quote and order driven systems. Investors will put the orders, where as the quote driven system will be for the market makers for providing the quotes. BSE will provide the FastTrade system to market makers free of cost for the purpose of providing the quotes. However, the market markers are permitted to use their own systems as well as third party systems with quote driven capacity. Q: Whether the promoter holding can be sold in the market? A: The promoter holding is not eligible to sell to the market maker for the market making activity. The entire promoter holding is locked for one year and 20% of the promoter holding is locked for three years as per ICDR Guidelines. After one year, promoter can sell his holding in the market, other than 20% under lock-in. Q: What are the compliance requirements for migration from the BSE SME Platform to the main Board? A: Any SME on BSE SME Platform having a paid up capital more than Rs. 10 crores can move to the main board provided that the special resolution is passed in the AGM in favor with at least two third of the number of votes cast by shareholders other than promoter shareholders and then apply to BSE SME. The SME migrating to the main board has to comply with all the main board norms like minimum 1000 investors, pay main board listing fees and do the quarterly compliance etc. Q: What are the capital gain tax benefits by listing on BSE SME? A: The sale of unlisted shares in short term attract the capital gain tax of 30% and the long term capital gain tax of 10%, where as in the case of listed securities the short term capital gain tax is 10% and there is no long term capital gains tax. This makes it clear that the listing of shares very attractive. Q: Whether Grading of IPOs is compulsory on SME Exchange? A: As per ICDR guidelines, the grading is compulsory on the SME Exchange. Q: Whether the website is mandatory for the SMEs? A: The Regulator has made it mandatory for the companies to have websites, if they propose to be listed on the main board. The same applies to the SME companies, if they want to get listed on the BSE SME Exchange. Q: Whether in the case chapter XA of ICDR is silent, what provisions will be applicable? A: ICDR Guidelines chapter XA clearly specifies that it will attract all the provisions of main ICDR guidelines where the exemptions are not being provided under these provisions. July, 2011 7 NIRC-ICSI Newsletter
Page 1 and 2: July, 2011 1 NIRC-ICSI Newsletter
Page 3 and 4: From the Chairman Dear Professional
Page 5: Article RAISING OF EQUITY AND LISTI
Page 9 and 10: Article huge challenge. The investo
Page 11 and 12: COMPLIANCE CHECKLIST FROM 10 TH JUL
Page 13 and 14: PROFESSIONAL DEVELOPMENT & TRAINING
Page 15 and 16: Students 6-14.6.2011 20 th Student
Page 17 and 18: PUBLIC RELATIONS COMMITTEE Sl. No.
Page 19 and 20: Delhi Study Group Meetings DELHI ST
Page 21 and 22: Forthcoming Programs TWO DAY WORKSH
Page 23 and 24: July, 2011 23 NIRC-ICSI Newsletter

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