Capital markets regulator the Securities and Exchange Board of India (SEBI) is considering accommodate various flexible proposals to moderate the listing of startups in the stock exchanges in the country. This will encourage domestic startups to go public.
Institutional Trading Platform(ITP) was put in place for amendments to SEBI Regulations in August 2015. As the framework failed to gain interest, the discussion paper was put in place to enhance interest amongst startups in July 2016 . However, due to loose market interest, amendment to the ICDR Regulations was not made.
In June 2018, SEBI formed a group with stakeholders to review ITP framework and identify areas which require further changes. Yet, the threshold norms for getting securities or shares listed was still very high. Thus, under normal condition for startup companies to list their securities was remotely achievable. Yet, the ITP did not gain the buzz it was expected when it was launched.
Considering this and potential of startups, on December 12, 2018, SEBI in its board meeting cleared the proposition for providing easy listing norms in cases of startups which are into intensive use of technology, information technology, intellectual property, data analytics, biotechnology, nano-technology and which add value to the product and services.
If this supposed move is implemented, it would facilitate entrepreneurs to class themselves as ordinary shareholders and relieve them of the mandatory three-year lock-in clause.
Also, if a Private equity firm is being reviewed as promoters of a company, eventually it will pull in a lot of fiduciary responsibilities and disclosure requirements. Besides, they will also be subjected to SEBI’s insider trading rules. Hence, the market controller might consider exempting promoters of their fiduciary responsibilities and permitting PE backers enough stakes in a firm to release them as promoters.
Due to the rigid IPO rules like one year locked in for pre-IPO investors after listing, three years of lock in period of 20% of promoters’ shares and requirement of onerous consideration for delisting itself as a promoter, Indian startups take the acquisition path for its departure.
Sandeep Parekh, founder, Finsec Law Advisors commenting on the possible amend said
Relaxing the promoter reclassification norms would be a move in the right direction as it would provide more flexibility to startups planning to list. These companies operate with completely different business models and hence need more lenient regulations. In order to mitigate risk of lenient regulations, the regulator could keep trading in these companies confined to wealthy investors and institutions.
Earlier this year, National Stock Exchange (NSE) was reportedly in a dialogue with SEBI to relax startup listing norms on its platform Emerge ITP, a regulated platform connecting growing ventures with potential investors with or without IPO.
Additionally, in a bid to bolster angel funding in the home grown startups,the SEBI board has approved the modification of the Alternative Investment Fund (AIF) for doubling the maximum investment limit.