SEBI's PROPOSAL FOR CHANGE IN PUBLIC FLOAT REGULATIONS

The Securities and Exchange Board of India (SEBI) has advanced to raise the minimum free float for companies relisted after going through Corporate insolvency and Resolution Process (CIRP). To make sure of greater price discovery and transparency SEBI, the capital market regulator has also called for enhanced disclosures. And this initiative of SEBI was triggered because of the 450-time growth of Ruchi Soya Industries after its acquisition by Patanjali Ayurved under its CIRP. This incident has raised many debates regarding the disclosure by SEBI. Rule 19A (1) of Securities Contract Act, 1956 prescribed that all the listed companies other than the public sector shall maintain a minimum shareholding of 25%. But if the company’s public shareholding falls below 25%, those companies shall increase its public shareholding to not less than 25% within a period of 3 years. Ruchi soya has not more than 1% of free float when the trading resumed. According to the SEBI Regulations, the company which will be relisting under CIRP shall increase its Minimum Public Shareholding to not less than 10% and to not less than 25% in an additional 18 months. This regulation is under the scanner of SEBI whether to relax these regulations. And this regulation stipulates a minimum lock-in period of Maximum 1 Year. It is not possible to increase the minimum Public Shareholding if the lock-in period is not being relaxed by SEBI. For better transparency, additional disclosure requirements are necessary. So that the investors do not remain in the dark towards the companies which are being relisted through CIRP.

And this is the main reason for the irrational pricing of shares and to avoid this SEBI should be coming up with better disclosures. And these changes in disclosures will be of great importance to the public shareholders or the investors to ascertain the real value of the price of the company’s share when it will be relisted