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Module- IIListing of Securities

Mr Shamsuddin

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Introduction

• Listing of securities means that the securities are admitted for trading on a recognized stock exchange. Transactions in the securities of any company cannot be conducted on stock exchanges unless they are listed by them. Hence, listing is the very basis of stock exchange operations. It is the green signal given to selected securities to get the trading privileges of the stock exchange concerned. Securities become eligible for trading only through listing.

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Introduction

• Listing is compulsory for those companies which intend to offer shares/ debentures to the public for subscription by means of issuing a prospectus. Moreover, the SEBI insists on listing for granting permission to a new issue by a public limited company. Again, financial institutions do insist on listing for underwriting new issues. Thus, listing becomes an unavoidable one today.

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Introduction

• The companies which have got their shares/ debentures listed in one or more recognised stock exchanges must submit themselves to the various regulatory measures of the stock exchange concerned as well as the SEBI. They must maintain necessary books, documents etc. and disclose any information which the stock exchange may call for.

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Group A, Group B and Group C Shares (BSE)

• The listed shares are generally divided into two categories namely:

• (i) Group' A shares (Specified shares or cleared securities) .

• (ii) Group B shares (Non-specified shares or non-cleared securities).

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• Group A shares represent large and well established companies having a broad investor base. These shares are actively traded. Naturally, these shares attract a lot of speculative multiples. These facilities are not available to Group B shares. However, shares can be moved from Group B to Group A and vice versa depending upon the criteria for shifting.

• For instance, the Bombay Stock Exchange has laid down several criteria for shifting shares from Group B to Group A, such as, an equity base of Rs. 10 crores, a market capitalization of Rs. 25-30 crores, a public holding of 35 to 40 per cent, a shareholding population of 15,000 to 20,000, good dividend paying status etc. Group B2 shares are again divided into B1 and B shares on the Bombay Stock Exchange. B1 shares represent well traded scrips among the B Group and they have weekly settlement.

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• Apart from the above, there is another group called Group C shares. Under Group C, only odd lots and permitted securities are included. A number of shares that are less than the market lot are known as odd lots. Market lot refers to the minimum number of shares of a particular security that must be transacted on a stock exchange. Odd lots have settlement once in a fortnight or once on Saturdays. Permitted securities are those that are not listed on a stock exchange but are listed on other stock exchanges in India. So they are permitted to be traded on this stock exchange. Odd lots cannot be easily transacted on the stock exchange and so they are illiquid in nature.

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Advantages of Listing

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Advantages of Listing

• The advantages of listing may be summarised as follows:-

• (i) Facilitates Buying and Selling Securities:- Listing paves way for easy buying and selling of securities. Constant marketing facilities are assured for listed securities:

• (ii) Ensures Liquidity:- The prices of listed securities are quoted daily in the market. Hence, securities can be converted into cash readily at quoted prices and. thus listing ensures liquidity.

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• (iii) Offers wide Publicity• Listed securities give wide publicity to the companies

concerned. It is so because the names of listed companies are frequently mentioned in stock market reports, T.V., Newspapers, Radio, etc. This has an advertising effect for such companies and this will automatically widen the market for their securities. According to Hasting, "A listed security will receive more attention from investment advisory services than an unlisted one".

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• (iv) Assures Finance:- The very fact that a security is listed in a recognised stock exchange adds to the prestige of that company and it enables the company to raise the necessary finance by the issue of such securities expeditiously.

• (v) Enables Borrowing:-Listed securities are preferred as collateral securities by commercial banks and other lending institutions because they are rated high in market quotations and there is a ready market for them also. Thus borrowings are made easier against the securities of the listed companies.

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• (vi) Protects Investors • Listing companies have to necessarily submit

themselves to the various regulatory measures by disclosing vital informations about their assets, capital structure, profits, dividend policy, allotment procedure, bonuses etc. Hence, listing aims at protecting the interest of investors to a greater extent.

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Drawbacks/ Disadvantages of listing

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• (i) Leads to Speculation • Listed securities offer wide scope for the

speculators to manipulate the values in such a way as may be detrimental to the interests of the company. In such a situation, artificial forces playa more dominant role than the free market forces. The stock market may not reflect the true picture of a listed security. Again, the managerial personnel may themselves indulge in speculative activities with regard to listed securities by misusing the inside information available to them.

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• (ii) Degrades Company's Reputation • Some times listed securities are subject to wide

fluctuations in their values. They may become a victim of depression. They are immediately reflected on the stock exchange whereas unlisted securities escape from this misery. These wide fluctuations in their values have the effect of degrading the company's reputation and image in the eyes of the public as well as the financial intermediaries.

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• (iii) Discloses Vital Informations to Competitors

• For getting the securities listed, a company has to disclose vital informations such as, dividends and bonuses declared, a brief history of the company, sales, remuneration to managerial personnel and so on. It amounts to leaking of secrecy of the company's operations to trade rivals. Even trade unions may demand higher wages and bonus on the basis of these informations. Thus, listing may prove disadvantageous to a company.

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LISTING PROCEDURE

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• The company concerned must apply in the prescribed form along with the following documents and details:

• (i) Certified copies of Memorandum and Articles of Association, Prospectus or Statement in lieu of Prospectus, Underwriting agreements, agreements with vendors and promoters etc.

• (ii) Specimen copies of shares and debenture certificates, letter of call, allotment, acceptance and renunciation.

• (iii) Copies of balance sheets and audited accounts for the last 5 years.

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• (iv) Copies of offers for sale and circulars or advertisements offering any securities for subscription or sale during the last 5 years.

• (v) Certified copies of agreements with managerial personnel.

• (vi) Particulars of dividends and bonuses paid during the last 10 years.

• (vii) A statement showing dividends or interest in arrears if any.

• (viii) A brief history of the company since its incorporation, giving details of its activities.

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• (ix) Particulars regarding its capital structure. • (x) Particulars of shares and debentures for which

permission to deal is applied for and their issue. • (xi) A statement showing the distribution of shares along

with a list of highest 10 holders of each class or kind of securities of the company stating the number of securities held by them.

• (xii) Particulars of shares forfeited. • (xiii) Certified copies of agreements if any with the

Industrial Finance Corporation, ICICI etc. • (xiv) Listing agreement with the necessary initial and

annual listing fee .

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Criteria for Listing

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• A company which desires its securities to be listed on a recognised stock exchange must satisfy the following conditions:

• (i) At least 60% of each class of securities issued must be offered to the public for subscription and the minimum issued capital should be Rs. 3 crores.

• (ii) The minimum public offer for subscription must be at least 25% of each issue and it must be offered through advertisement in newspapers atJeast for a period of 2 days.

• (iii) The company should be of a fair size having broad based capital structure and public interest in its securities.

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• (iv) There must be at least 10 public shareholders for every Rs. 1 lakh share of fresh issue of capital and it is 20 in the case of subsequent issue of shares. This criterian is different for investment companies.

• (v) A company having more than Rs, 5 crore paid up capital must list its securities on more than one stock exchange. Listing on the regional stock exchange is compulsory.

• (vi) The company must pay interest on the excess application money received at the rates ranging between 4% and 15% depending on the delay beyond 1:0 weeks from the date of closure of the subscription list.

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• (vii) The Articles of Association of the company must provide for the following:

• (a) A common form of transfer shall be used. • (b) Fully paid shares will be completely free from lien. • (c) Partly paid up shares will be subject to lien only to the extent of

call money due at a fixed time. • (d) Calls in advance carry only interest and not dividend rights. • (e) Unclaimed dividends shall not be forfeited before the claim

becomes time barred. • (f) The right to call of shares shall be given only after the necessary

sanction by the general body meeting. •  (g) Transfer of shares shall be registered within 30 days of deposit

of request and the balance certificates shall be issued within the same period.

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• (viii) The existing companies must adhere to the ceiling in expenditure of public issues.

• (ix) A certificate to the effect that shares from promoter's quota are not sold or transferred for a period of 3 years must be submitted.

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Listing Obligations

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• The Company has to compulsorily notify the stock exchange:-

• (i) the date of the board meeting at which the declaration or recommendation of dividend or the issue of right or bonus share will be considered.

• (ii) any change in the company's directorate or managerial personnel by death, resignation, removal or otherwise.

• (iii) any issue of new shares, rights shares or otherwise as well as the issue of any privileges or bonuses to members, even before they are intimated to shareholders.

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• (iv) any change in the company's capital structure. • (v) any material change in the general character or nature

of the company's business. • (vi) any re-issue of forfeited securities or the issue of any

other securities held in reserve for future issue. • (vii) any action which will result in the redemption,

cancellation or retirement of any securities listed on the stock exchange.

• (viii) any intention to make a drawing of listed securities. • (ix) any other information necessary to enable the

shareholders to appraise the company's position so as to avoid the establishment of a false market in the shares of the company.

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• (x) In addition to the above, the company has to forward to the stock exchange:

• (a) copies of all notices and circulars sent to the shareholders including the proceedings of ordinary and extraordinary general meetings.

• (b) certified copies of all resolutions passed by the company as soon as such resolutions become effective.

• (c) copies of statutory and annual reports and annual audited accounts as soon as they are issued as well as the director's report.

• (d) annual return of at least 10 principal holders of each class of security of the company.

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Additional Obligations

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• The company must satisfy the following additional conditions: • (i) The company must recommend or declare all dividends/

cash bonuses, at least, 5 days before the commencement of the closure of its transfer books.

• (ii) The company must advise the stock exchange in writing of all such dividends/cash bonuses recommended or declared immediately after the Board meeting has been held.

• (iii) The company must close the transfer books only for the purpose of declaration of dividend or for the issue of rights/bonus shares.

• (iv) The company must grant to shareholders the right of renunciation in all cases of rights issue.

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• (v) The company must undertake to maintain all letters of allotment, regret, acceptance and rights serially and to issue letters of allotment and regret simultaneously at the same time.

• (vi) The company must issue receipts for all securities deposited for registration/exchange/sub-division or for any other purpose and it should not charge any fee for it.

• The recognised stock exchange has power to call for such other information as may be necessary or to produce further documents in the interest of the investors. In such a case, the company concerned must comply with those requirements also.

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Thank You

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