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Rebirth of the small investor
- Companies will have to list within six days of maiden offer closure

New Delhi, June 24: The Securities and Exchange Board of India today redefined small investors as people who invested up to Rs 50,000 in a public issue.

Until now, the criterion to determine a small investor was anyone who could invest in up to 1000 shares offered through a public issue.

This cut-off limit is important as Sebi norms make it mandatory for a new issue to reserve at least a quarter of the issue size for small shareholders. Individuals spending more than Rs 50,000 on any issue will come under the category of high networth buyers for whom there are no mandated reservations.

The market regulator will also soon come out with rules that will make it compulsory for listing of an issue within six days of the initial public offer having been completed instead of the current 15 days.

The new stricter rules aimed at tightening regulation of a market which has seen a series of high profile scams, were announced at a meeting at North Block where finance minister Jaswant Singh launched trading of interest rate futures in stock exchanges, a move which should allow banks, provident funds, insurance companies and even individuals to hedge against interest rate fluctuations.

The government announced that interest rate options will be introduced soon. Interest rate derivatives — futures and options — are tools through which investors can hedge against market volatility. To popularise this tool, the government is also considering bringing down the minimum investment limit on share derivatives from a current floor of Rs 2 lakh to Rs 1 lakh.

Singh said the market regulator would soon come out with the new guidelines on public offers which would see introduction of greenshoe option, shortening the period between closure of issues and listing from 15 to six days for book built issues and greater disclosure of CEOs.

The finance minister also welcomed the return of small investors to the market stating, “I am happy to be here with the backdrop of the recently concluded Maruti IPO, which was oversubscribed 10 times.”

To check the phenomenon of companies disappearing after making an IPO, Sebi has also decided to mandate greater disclosures by chief executive officers or chief financial officers of corporates and full disclosure of details of promoters including photographs, PAN cards of promoters and curbs on advertisements which can be put out for public issues.

Sebi has also reduced the mandatory qualified institutional buyers allocation portion from 60 per cent to 50 per cent to make a relatively higher portion available to retail investors.

Sebi chief G. . Bajpai added, “We have also decided to bar qualified institutional buyers from withdrawing their bids in the book building process.”

This has been done to stop any false book building and, thus, manipulation of the closing price of an issue. The definition of QIBs is also being changed to include all insurance companies which are registered with Sebi. The concept of net tangible assets will also be brought in to ensure a minimum tangible existence of a company before accessing bourses.

Futures trading

Future trading in bonds and treasury bills was kicked off today with transaction value put at Rs 140 crore. The notional value of contracts traded was over Rs 153 crore with 7661 contracts being transacted on the National Stock Exchange (NSE).

Most of the deals were reported at 10 year 6 per cent bonds that saw close to Rs 67 crore of contracts traded. This was followed by 91 day treasury bills at Rs 61 crore and 10 year zero coupon bonds at over Rs 25 crore.

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