SEBI Proposes Relaxed Norms For Startup Listing

To make listing on bourses more attractive for startups, the Securities and Exchange Board of India today came out with a new set of proposals that would allow more investor categories, relax shareholding norms and reduce trading lot amount.

In this regard, the market regulator has mooted changes to the framework of institutional trading platform, which has not seen much traction even though it was put in place in August 2015.

Since the framework failed to evince interest, the market regulator came up with certain recommendations through a discussion paper in July 2016 to make the platform more accessible. Also, considering the lukewarm response in the platform, no amendments were made to the norms.

However, lately, there has been a lot of activity in the startup space in India and interest has been evinced with regard to listing on institutional trading platform by various stakeholders and industry bodies, according to the SEBI.

Following this, the regulator constituted a group in June to review the institutional trading platform framework and identify the areas which require further changes.

Issuing the draft papers today, the regulator proposed to rename the institutional trading platform as "Innovators Growth Platform".

In order to be eligible for listing on the institutional trading platform, the SEBI has proposed increasing the category of eligible investors when it comes to shareholding before the listing.

It has proposed that 25 percent of the pre-issue capital should be held by qualified institutional buyers or other regulated entities or accredited investors for at least two years. Of this, not more than 10 percent should be held by accredited investors.

Besides, qualified institutional, buyers family trust with net-worth of over Rs 500 crore, category III foreign portfolio investors should be made eligible.

The SEBI also proposed that entities such as those having a pooled investment fund with minimum assets under management of $150 million and those from a jurisdiction that is signatory to the international organisation of securities commission's multilateral MoU should qualify for holding 25 percent of the pre-issue capital.

The market watchdog has defined accredited investors as any individual with total gross income of Rs 50 lakh annually with a minimum liquid net worth of Rs 5 crore, or any corporate body with net worth of Rs 25 crore.

The regulator has suggested tweaking the share allocation limit in entities listed on the platform. It is proposed that there should not be any minimum reservation of allocation to any specific category of investors and allocation should be on a proportionate basis.

At present, 75 percent of the net offer to public should be allocated to institutional investors and the remaining 25 percent to non-institutional investors.

In case of discretionary share allotment to individual institutional investors, the watchdog has proposed allocation to investors on a proportionate basis, without any reservation. At present, ceiling is 10 percent of the issue size for discretionary allotment.

Another proposal is to do away with the current requirement that no person, individually or collectively, should have more than 25 per cent of the listed entity's post-issue capital.

As per the discussion paper, minimum trading lot is to be reduced to Rs 2 lakh from existing Rs 10 lakh. Besides, minimum number of allotees will be decreased to 50 from the present 200. A minimum lock-in period of six months for the entire pre-issue capital would be made applicable on all categories of shareholders.

The SEBI also proposed that the new platform be designated as a main board platform for startups with an option to trade under regular category after completion of one year of listing.

Currently, an entity listed on institutional trading platform may migrate to the main board after expiry of three years from the date of listing.

The discussion paper on review of framework for institutional trading platform, open to public comments till Nov. 16, has been prepared after taking into consideration recommendations of the SEBI constituted group, primary market advisory committee and market participants' feedback.