Sebi mulls tighter listing regulations
The Securities and Exchange Board of India (Sebi) is planning to impose a limit on the minimum market capitalization for companies to remain listed in an effort to weed out so-called penny stocks, said two people aware of the development including an official with the regulator.
The regulator is considering a free float market capitalisation of ₹10 crore for companies to remain listed, these people said. Free float market cap is the value of publicly traded shares.
At present, there are no such criteria for continued stock liquidity in India. However, at exchanges such as the Bombay Stock Exchange (BSE) and the National Stock Exchange of India (NSE) stipulate a minimum market capitalisation of ₹25 crore at the time of listing.
Sebi’s thinking is in line with international practices. For example, New York Stock Exchange’s continued listing rules say that the a company is not compliant if its average market capitalisation over a 30-day trading period is less than $50 million.
Sebi has found that out of around 5,000 odd firms with listed equities on exchanges, at least 1,000 appear to be penny stocks having only a few investors and infrequent trading, said tone of the people cited earlier. Data from Capitaline showed that at the end of trading on Tuesday, there were at least 396 actively traded companies with a market capitalisation of less than ₹10 crore.
“There are many companies whose business is only on the paper. Such penny stocks do not make any economic sense, such companies should go out of the exchange space,” said this person.
A Sebi spokesperson did not respond to an email seeking comment.
Sebi is likely to issue a consultation paper on this proposal in a few weeks, these people said. A committee under the regulator is already studying this issue has made other suggestions apart from the market cap floor.
The group has recommended that companies maintain a minimum trading turnover as a proportion of the market cap, said the second of the two people cited earlier. It has also recommended tighter net worth and profitability norms for companies. At present, Sebi and stock exchange don’t stipulate a minimum net worth for companies whose equity is freshly getting listed. Sebi is now planning to stipulate a minimum asset requirement of ₹25 crore for a company on a continuous basis to remain listed, said the first person.
“Apart from liquidity criteria, Sebi should also apply other criteria linked to performance of the company since market liquidity is something which is not in control of the company. There should be some compliance requirements in terms of growth, profitability, revenues etc. to judge the quality of the business and the future prospects of the company,” said Sudhir Bassi, executive director at law firm Khaitan & Co.
MUMBAI: