The regulator is also working on instantaneous settlement of stock market transactions and reviewing the trading plan mechanism for insiders at listed firms. Sebi will issue a discussion paper on the delisting process before December.
“Because of the way… it was formulated, and because of the 90% threshold, there is a possibility of misuse,” the Sebi chief told reporters on Monday. “Certain operators are specialists in delisting of shares, we know that. Their business model is, wherever there is an anticipation of delisting, go and garner 10% or more amongst their own like-minded people. And… when the delisting proposal comes, to extract a higher price. That need not always be the fair price.”
Sebi is not the arbiter of what the fair price should be, she said.
“But if there is a certain price that has been in the market for a reasonable period of time (and) only because of delisting, the price is jacked up to a very high level, that may not be the fair price,” Buch said. “When we talk up about fairness, it should be fair for all the parties. Secondly, the power still rests with the investor. However, as a regulator, we cannot stand by if that power is misused and that is the protection we owe to the companies.”
The delisting regulation will be reviewed by a committee headed by Keki Mistry. The regulator said it has received feedback from the industry that the current reverse book building mechanism is problematic. Under this, shareholders are allowed to place bids at the price at which they are willing to sell their shares in the offer.
The regulator said companies can try to set a fixed price and if that doesn’t work, they can go for the reverse book building mechanism. And if that also fails, then they will be given more time, maybe two-three years, to delist.
The regulator expects the new proposal will go a long way toward helping companies that don’t want to be listed.
“The move to fixed price is a positive development and is in alignment with the practice in global markets,” said Mehul Savla, partner, RippleWave Equity Advisors. “The reverse book building process invariably led to a higher element of speculation as the price bidding and acceptance or rejection process could result in a dramatic gain or loss depending on the outcome.”
The technical nature of the mechanism may hinder wider participation by investors.
“The complexity of delisting has been a major deterrent to M&A activity in listed companies,” Savla said. “Historically, slump sale structures have been pursued to overcome this which led to minority investors’ interest getting compromised. A simpler framework would promote higher level of M&A and lead to further development of financial markets.”
Separately, Sebi is considering a review of the rules for corporate disclosures related to insider trading regulations.