In a major boost to market participants, the Indian market regulator is contemplating on revising in the listing time for IPO’s
The Indian Market Regulator, SEBI, has taken another step towards creating an efficient primary market and is considering scaling down the IPO listing time to four days from the existing six days. Listing time is the duration from the issue closure date to a company’s shares being traded on stock exchanges. While the decision is yet to be made, it is in line with market expectations and SEBI has been considering the change for quite some time. In 2010, the listing time in the secondary markets was first reduced from 22 to 12 days. It was later brought down to T + 6 in 2015, following a discussion paper in which SEBI proposed norms to fast- track electronically listed IPOs, public offerings and rights issues. SEBI, in its press interactions has clarified the rationale behind reducing the listing time. Following are some of the reasons why this particular move can be considered a good step-
1) Simplifying the process & reducing cost-
Bringing down the listing time automatically results in a lot of saving in terms of paperwork and manpower. Processes that were earlier physical and required transfer of money between accounts were avoided by introducing the compulsory use of online payment system ASBA (Application Supported by Blocked Amount) for retail investors. A shorter listing period also means that funds of investors remain blocked for a shorter duration; from the closure of an issue to its listing. The outcome would lead to massive savings, for the issuer and investors alike.
2) Wider base of investors-
SEBI had earlier observed that listed issuers prefer the private placement route including Qualified Institutional Placement vis-à-vis public offers or rights issue because of their shorter time frame and associated lower costs. This limited the participation of retail investors in the market. Therefore, by allowing companies to raise capital in a short span of time at lower costs through a simplified IPO process, SEBI is assisting companies reach a wider audience: A welcome move which would benefit both the issuer and investors.
3) Increased efficiency & time saving-
Apart from transparency and time saving, a smaller listing time will help achieve increased operational efficiency. The post issue process tends to become more streamlined and efficient. With increasingly shorter listing time, IPOs in primary markets will become more like buying shares on the secondary market that have a settlement period of T + 2 days.
4) Catching up with developed markets-
Financial markets in developed countries have a one day interval between the closure date and the listing of shares in the secondary market. By reducing the listing period, SEBI hopes to catch up with global listing process being followed in developed countries. Moreover, some Indian companies are already listing their shares in the secondary markets in less than six days. Therefore, to ensure that this timeline is followed by all companies should not be a major challenge in today’s technology driven industry.
5) Lower risk due to market volatility-
The listing of shares on the Indian Exchanges within a short duration after the IPO closure reduces the risk of broader market volatility during the transition period. In the eventuality of a major market correction, the overall impact on the listed company will be much lower which could otherwise lead to panic among investors.
With a quick transition from IPO to listing on the Exchanges, SEBI looks to bring together a larger number of issuers on to the Exchange platform. The move, if and when it takes place will definitely benefit all the market participants and will be a step closer to realism when the listing period will completely align with those of the major global economies. With the SEBI board likely to meet on June 21st 2017, one can definitely expect more clarity on the subject.