Listing of Securities at Stock Exchanges
Listing means formal admission of a security into a public trading system of a stock exchange. A security is said to be listed when they have been included in the official list of the stock exchange for the purpose of trading. The prime objective of admission to dealings cm the stock exchange is to provide liquidity and marketability to securities and also to provide a mechanism for effective management of trading. The securities listed in stock exchanges may be of any public limited company, central or state government, quasi-government and other corporations or financial institutions. To make a security eligible to be listed in a stock exchange, the company shall be obligatory to fulfill all the listing requirements specified in the Companies Act of 1956. Besides the company is also compulsorily to discharge the listing norms issued by SEBI from time to time and such other conditions, requirements and norms that may in force from time to time and the bye-laws and regulations of the exchange to make the security eligible to be listed and for continuous listing on the exchange.
Acts and Regulations Governing Listing of Companies
A company intending to list its securities in stock exchange shall fulfill all the basic requirements of listing stated in The Companies Act, 2013 and the Securities Contracts (regulations) Act of 1956. The issuer company shall also comply with all the conditions of listing stated both by The Securities and Exchange Board of India (SEBI) and the concerned stock exchange. The securities listed on the exchange at its discretion, as the stock exchange has the right to include, suspend or remove from the list the said securities at any time and for any reason, which it considers appropriate. The companies desire to list their securities shall comply with all the relevant provisions of listing stated in the following Acts, Rules, Regulations and Guidelines.
- Indian Companies Act, 2013.
- Securities Contracts (Regulations) Act, 1956.
- Securities Conrtacts (Regulations) Rule, 1957.
- SEBI Guidelines (Disclosure and Investor Protection), 2000.
- Rules, bye-laws and regulations of the stock exchange made by time to time.
The company should execute a listing agreement, in the prescribed form with the stock exchange, prior to approval of the listing application of the company. Listing agreement is of great importance and is executed under the common seal of the company. Under this agreement, the company must give an undertaking to the exchange that they will provide facilities for prompt transfer, registration, sub-division and consolidation of securities and giving proper notice of closure of transfer books and record dates.
The listing agreement specifies the terms and conditions of listing and the disclosures that shall be made by a company on a continuous basis to the exchange for dissemination of information to the market Any addition or amendment to the provisions of the listing agreement, as may be prescribed by SEBI and the stock exchange shall become applicable to the company as if such addition or amendment was part of the listing agreement. In other words, for listing of securities, companies are called upon to keep the stock exchange fully informed of all corporate developments having a bearing on the market price of shares like dividend, rights, bonus shares etc.
As per SEBI Guidelines, an issuer company should complete the formalities for trading at all the stock exchanges where the securities art: to be listed within 7 working days of finalization of the basis of allotment.” A company should scrupulously adhere to the time limit specified in SEBI (Disclosure and investor Protection) Guideline 2000 for allotment of all securities and dispatch of allotment letters/share certificates/credit in depository accounts and refund orders and for obtaining the listing permissions of all the exchanges whose names are stated in its prospectus or offer document, [n the event of listing permission being denied to a company by any stock exchange where it had applied for listing of its securities, the company cannot proceed with the allotment of shares. However, the company may file an appeal before SEBI under Section 22 of the Securities Contracts (Regulation) Act, 1956
Central Listing Authority
The Central Listing Authority (CLA) is set up to address the issue of multiple listing of the same security and to bring about uniformity in the due diligence exercise in scrutinizing all listing applications on any stock exchanges. SEBI or any authority constitutes the Central Listing Authority under the relevant law relation to listing or delisting and trading or suspension of trading in securities of companies on a stock exchange.
The Central Listing Authority is constituted by SEBI and consists of a President and not more than ten members, out of which at least four members are representatives of the stock exchanges. SEBI appoints the President and the members of central listing authority. Persons having integrity, outstanding ability and drawn from judiciary, lawyers, academicians and financial experts are generally appointed as members.
The functions of Central Listing Authority as enumerated in SEBI (Central Listing Authority) Regulations of 2003 include the following:
- Processing the application submitted by any body corporate, mutual fund or collective investment scheme for the letter of recommendation to get listed at the stock exchange. Before making an application for listing to any stock exchange, a body corporate, mutual fund or collective investment scheme should obtain a letter of recommendation for listing from the Central Listing Authority on an application made on that behalf.
- Making recommendations as to listing conditions.
- Any other functions that may be specified from time to time by the SEBI. Where the Central Listing Authority refuses to issue letter of recommendation in accordance with the procedure laid down in the Regulations, the aggrieved party may approach SEBI with in 10 days of receipt of such refusal and if satisfied, SEBI may direct Central Listing Authority to issue a letter of recommendation within 15 days of receipt of such representation.
If the exchange refuses listing to the body corporate, mutual fund or collective Investment scheme, it may prefer an appeal to the Securities. Appellate Tribunal as provided in the Securities Contracts (Regulations) Act, 1956.
The provisions, guidelines, norms and procedures governing the listing or delisting and trading or suspension of trading in securities may be stipulated by the Central Listing Authority and should be incorporated in the bye-laws of the exchange and should be made applicable to the exchange. Central Listing Authority should also set up a fund called the Central Listing Authority Fund for any processing fees charged and received by the authority.
Advantages of Stock Exchange Listing to Companies
Listing of securities on a stock exchange offers many opportunities to the companies. Following are the important advantages of listing:
- Listing enables companies to enjoy the confidence of the investing public.
- It helps the company to raise future finance easily for financing new projects, expansions, diversification’s and for acquisitions.
- Listing increases a company’s ability to raise capital through various other routes like preferential issue, qualified institutional placement, ADRs, GDRs, FCCBs etc,
- Listing improves the image or status of the company and thus it provides value addition.
- Listing raises a company’s public profile with customers, suppliers, investors, financial institutions and the media. A listed company is typically covered in analyst reports and may also be included in one or more of indices of the stock exchanges.
- Listing facilitates nation-wide trading facility for a company’s securities.
- It facilitates companies to ascertain the market value of their shares.
- Listing provides price continuity for securities.
- Listed companies enjoy certain confessional rates of income tax.
Advantages of Stock Exchange Listing to the Investors
- Listing provides ready marketability of securities.
- It ensures considerable liquidity to the investors.
- Listing ensures continuous liquidity to the investors.
- Listing provides fair, efficient and transparent securities market to the investors.
- Listing of securities on stock exchanges improves investor’s awareness and confidence on securities.
- Listing leads to better and timely disclosures and thus protects the interest of the investors.
- It also provides a mechanism for effective management of trading.
Disadvantages of Stock Exchange Listing
- Once the securities are listed, the company is obligatory to discharge various regulatory measures, bye-laws, circulars and other guidelines as may be prescribed by the stock exchange and SEBI from time to time.
- Listing involves huge expenditure to the company.
- Companies have to fulfill a number of formalities for listing of securities.
- Listed companies are required to submit and disclose vital information to the stock exchanges from time to time.
Delisting of Securities at Stock Exchanges
Delisting indicates removal of securities of a listed company from a stock exchange. As a consequence of delisting, the securities of that company would no longer be traded at that stock exchange. In the interest of orderly market in securities or in the interest of trade or in the public interest, the Governing Board or Managing Director or Relevant Authority has absolute discretion to impose restrictions on trading in any security admitted to dealings on the exchange. During the operation of such restrictions, no trading member shall, either on his own account or on account of his subbrokers or clients, enter into in any transaction in contravention of such restrictions. SEBI Guidelines (Delisting of Securities), 2003 deals with the delisting of companies securities.
A company may be allowed to get its securities de-listed from the exchange, provided the provisions, guidelines, norms and procedures governing the delisting and suspension of trading in securities that may be stipulated by the SEBI or Central Listing Authority are duly complied with. SEBI guidelines on delisting of securities from stock exchanges are applicable only in the following three situations.
1. Voluntary Delisting of Securities
Any promoter or acquirer desirous of voluntarily delisting of securities of a company from all or some of the exchanges shall fulfil the following conditions under the provisions of the SEBI guidelines.
- Prior approval of shareholders of the company by a special resolution passed at its general body meeting.
- Make a public announcement in the manner as provided in the guidelines.
- Make an application to the delisting exchange in the form specified by the exchange.
- Comply with such other additional conditions as may be specified by the concerned stock exchanges from where securities are to be de-listed.
The SEBI guidelines (Delisting of Securities, 2003) provide the overall framework for voluntary delisting by a promoter or acquirer through a process referred to as “Reverse Book Building”. Under reverse book building process the promoter shall appoint trading members for placing bids on the online electronic system Investors may approach trading members for placing offers on the on-line electronic system. The shareholders desirous of availing the exit opportunity shall deposit the shares offered with the trading members prior to placement of orders. Alternately, they may mark a pledge for the same to the trading member. The offer price has a floor price, which is average of 26 weeks average of traded price quoted on the stock exchange where the shares of the company are most frequently traded preceding 26 weeks from the date the public
announcement is made. There is no ceiling on the maximum price. For occasionally traded securities, the offer price is as per Regulation 20 (5) of SEBI (Substantial Acquisition and Takeover) Regulations. The final offer price shall be determined as the price at which the maximum number of shares has been offered. The promoter or acquirer shall have the choice to accept the price. If the price is accepted, the acquirer shall be required to accept all offers up to and including the final price. If the quantity eligible for acquiring securities at the final price offered does not result in public-shareholding falling below the required level of public holding for continuous listing, the company shall remain listed. At the end of the book building period, the merchant banker to the book building exercise shall announce the final price and the acceptance (or not) of the price by the promoter/acquirer.
The stock exchanges shall provide the infrastructure facility for display of the price at the terminal of the trading members to enable the investors to access the price on the screen to bring transparency to the delisting process. The stock exchange shall also monitor the possibility of price manipulation and keep under special watch the securities for which announcement for delisting has been made.
2. Compulsory Delisting of Securities
Permanent removal of securities of a listed company from a stock exchange as a penalizing measure at the behest of the stock exchange for not making submissions or complying with various requirements set out in the listing agreement within the time frames prescribed. In connection with compulsory de-listing of securities the stock exchanges have to adopt the following criteria.
The stock exchanges may delist companies which have been suspended for a minimum period of six months for non-compliance with the listing agreement. The stock exchanges have to give adequate and wide public notice through newspapers and also give a show cause notice to the company. The exchange shall provide a period of 15 days within which representation may be made to the exchange by any person who may be aggrieved by the proposed delisting.
Where the securities of the company are delisted by an exchange, the promoter of the company should be liable to compensate the security holders of the company by paying them the fair value of the securities held by them and acquiring their securities, subject to their option to remain holders of the company
3. Liquidation or Merger
If any issuer whose securities have been granted admission to dealings on the exchange, be placed in final provisional liquidation or is about to be merged into or amalgamated with another company, the Governing Board or Managing Director or Relevant Authority may withdraw the admission to dealings on the exchange granted to its securities. The Relevant Authority may accept such evidence as it deems sufficient as to such liquidation, merger or amalgamation. If the merger or amalgamation fails to take place or if any company placed in provisional liquidation be reinstated and an application be made by such company for readmission of its securities to dealings on the exchange, the competent authority shall have the power of considering and of approving, refusing or deferring such application.