SEBI Proposes Framework for Price Discovery of Investment Companies

What’s in today’s article?

• Why in News?
• What are ICs and IHCs?
• What are the Securities and Exchange Board of India’s (SEBI) Draft Norms?
• Other Key Proposals in the Draft Norms

Why in News?

Markets regulator SEBI proposed to lay a framework for price discovery of shares of listed investment companies (ICs) and listed investment holding companies (IHCs) whose market price is at significant discount to their book value.

What are ICs and IHCs?

• ICs are companies that earn major revenue from interest, capital appreciation from investments made, and do not include rental income which is classified under diversified commercial services.
• IHCs are holding companies with holdings of 51% or more in other companies.
• Currently, shares of a few listed ICs or IHCs are getting traded infrequently but at a price which is significantly lower than the book value disclosed by the listed entities in their last audited financial statements.

What are the Securities and Exchange Board of India’s (SEBI) Draft Norms?

• In the draft norms, SEBI said a special call-auction mechanism without price band may be enabled for listed ICs and IHCs, whose shares are trading beyond a certain discount to their book value.
• For this, stock exchanges will coordinate amongst themselves and provide the special call-auction mechanism for such companies.
• The concept of price bands had been put in place as a risk management and surveillance measure for ensuring orderly trading, appropriate price discovery and promoting market integrity.
• SEBI also suggested certain criteria for identification of ICs and IHCs eligible for special call auction.

Other Key Proposals in the Draft Norms

• The scrip should have been listed and available for trading at least for a period of 1 year and the company should have been compliant with all the LODR Regulations including submission of audited financial results.
  • LODR is Listing Obligation and Disclosure Requirement.
• Total assets of the company invested in shares of other listed companies may at least be 50%.
• The 6-month VWAP (volume weighted average price) of the security may be less than 50% of the book value of such companies.

Once the companies are identified, the stock exchanges shall initiate the process for special call-auction without price band for shares of such companies with a 7-day prior notice.

Q.1. What are the Listing Obligations and Disclosure Requirements (LODR)?

LODR are the listing regulations issued by the Securities Exchange Board of India (SEBI) with an aim to consolidate and streamline the provisions relating to disclosures to be made by the listed entities.

Q.2. What is the role of SEBI in regulating the Indian Securities Market?

One of the primary functions of SEBI is to protect the interests of investors. It does so by ensuring that listed companies provide accurate and timely information to investors, preventing insider trading and fraudulent practices, and by taking action against those who violate regulations.