Slew of checks and balances

THE group on risk management in equity markets decided on the following risk containment measures for rolling settlement and for the products of CNS, CFRS and ALBRS:

*Gross exposure: The gross exposure would be aggregate of all the open positions of the member outstanding on that day. Thus, the gross exposure as at the end of day T would be the net of the following: The net of the outstanding positions of the previous four trading days, the outstanding position created on day T, the net outstanding position of the future five settlements.

*The gross exposure margin would be calculated on the highest net outstanding position at the end of any trading day for which the settlement has not been concluded.

*Mark-to-market margin would be applicable as in the account period settlement system.

*The present limit of Rs 5 crore per scrip for a member would be applicable to the scrips in CFRS and ALBRS.

*The T-2 open deferral positions at the three exchanges of BSE, CSE and the NSE would be shared and consolidated positions would be considered for announcement of the scrips attracting the incremental CFRS and ALBRS margin on T+1 day.

*The margin, which is applicable in the account period settlement, would continue in the rolling settlement also.

*Member-wise CFRS and ALBRS limit of Rs 40 crore would continue to apply as an aggregate exposure of account period and rolling settlement deferrals.

*The margin structure as applicable for the CFRS and the ALBRS would also apply to the CNS positions of the member.

*Further, pursuit to the decisions taken in an earlier meeting of the Group on Risk Management in Equity Markets, stock exchanges were advised that:

*The exchanges may collect a uniform margin of 12.5 per cent on the carry forward position in the MCFS and on the trade positions in the ALBM instead of the stratified margin slabs.

*As CFRS, ALBRS and CNS are new products, the exchanges would undertake educational and awareness programmes for the investors to familiarise them with the features of these products.

Secondary market: The following are the major decisions/recommendations arrived at in the meeting: It was agreed to do away with the concept of ``no delivery'' period for corporate actions such as issue of dividend and bonus shares for the companies whose securities are traded in the compulsory dematerialised form. This will ensure continuous trading of shares on ex-basis and will reduce the possibilities of price manipulation during the no delivery period. The current requirement of 90 days gap between two book closures should be reduced to 30 days. Following the passing of the IT Act, SEBI should issue suitable clarifications to the stock exchanges to allow contract notes and client confirmation through digital signatures.

SEBI had earlier made client code mandatory for all the stock exchanges. Non-implementation of the mandatory client code by January 1, 2001 would bar the exchange from conducting carry forward and ALBM sessions. It was also agreed that the companies should be required to disclose its decision regarding dividend, bonus and rights announcements or any material event within 15 minutes of the conclusion of the board meeting in which the decision has been taken. Such an announcement can also be made within the market hours.

With a view to ensure the availability of floating stock of listed companies on a continued basis, the following decisions were taken:

*No preferential allotment/buyback of listed companies would be permitted if as a result of preferential allotment or buyback, the non-promoter holding fails below the ceilings permitted under the SEBI Disclosure Investor Protection Guidelines applicable at the point of entry (10 per cent for IT, media, infrastructure companies and 25 per cent for others).

*In case of new companies, the above limits of 10 per cent and 25 per cent for non-promoter holding would have to be maintained on a continuous basis.

*In the case of the existing companies, it was decided to make a beginning by mandating that the non-promoter holding must be at least 10 per cent. In cases, where such holding is less than 10 per cent, the companies will be given time up to one year to raise the levels of non promoter holdings or buy out the public shareholding.

The stock exchanges will monitor the level of non-promoter holding on a half-yearly basis from the returns to be submitted by the companies. The formats for these returns would be specified shortly.

Surveillance in exchanges: At the request of the Forward Markets Commission, a one-day programme on `Surveillance in Exchanges' was organised for their officers on November 23, 2000 in their Mumbai office. Twenty-five officers of the commission, including Mr Baidev Chand, Chairman, and Dr Kewal Ram, Member, participated in the programme. Topics such as on-line surveillance, offline surveillance, risk management, regulatory framework, inspection and investigation were covered exhaustively with real-life illustrations by Mr M. L. Soneji, CEO, NSCCL, and Mr J. Ravichandran, Sr. Vice-President and Company Secretary, NSEIL. The kind and level of interest shown by participants, including top brass of FMC, was heartening.

DotEx Plaza: DotEx Plaza, an aggregated application service for member brokers to offer web-based services to investors, was launched by Mr D. R. Mehta, Chairman, SEBI. It aims to offer increased convenience to the investor community by integrating multiple market intermediaries such as brokers, depositories, banks and investment consultants into a single platform. The business model ensures complete freedom and flexibility for investors to deal with their preferred financial service providers.

DotEx, as a neutral aggregator, will act as the common infrastructure provider and ensure a level-playing field that would enable all market participants to compete and focus on differentiating themselves through customer service excellence. DotEx Plaza has been launched by NSE and DotEx (NSE.IT and I-flex Solutions joint venture Company). It is the first broker plaza shared Internet trading facility in the world.

Primary market: The Primary Market Advisory Committee in its meeting considered the following issues:

*The committee suggested to make the facility of 10 per cent public offer available for all companies across-the-board on a par with the companies from software, telecom, media and entertainment sectors with a condition that the minimum issue size shall not be less than Rs. 250 crore.

*The committee felt that the minimum public shareholding as required for public listing _ 25 per cent or 10 per cent, may be made a continuous listing requirement.

*The committee suggested that the unsubscribed portion under the fixed price category in a book-built issue may be allocated to investors other than the retail investors, if the public category portion is under subscribed.

Companies Amendment Bill: The Companies (Amendment) Bill, 2000 was passed on November 27, 2000. The bill proposes amendments in the Companies Act, 1956 to improve corporate governance and protection of investors. It provides for the following:

*There shall be only two categories of companies, public and private;

*Minimum paid-up capital shall be Rs 1 lakh for private companies and Rs 5 lakh for public companies;

*Shifting of registered office from the jurisdiction of one ROC to another within the same state would require confirmation from the Regional Director;

*The equity shares may be issued with voting rights or with differential rights as to dividend, voting or otherwise.

*Every public listed company making initial public offer of any security for Rs 10 crore or more shall issue the same only in dematerialised form;

*Offer of shares/debentures to more than 50 persons shall be treated as made to the public;*The provisions contained in sections 55 to 58, 59 to 84, 108, 109, 110, 112, 113, 116, 117, 118, 119, 120, 121, 122, 206, 206A and 207, so far as they relate to issue and transfer of securities and non-payment of dividend, shall be administered by SEBI in case of listed public companies, and in case of those public companies which intend to get their securities listed on any recognised stock exchange in India.

In any other case, these shall be administered by the Centre. All powers relating to all other matters, including the matters relating to prospectus, statement in lieu of prospectus, return of allotment, issue of shares and redemption of irredeemable preference shares shall be exercised by the Centre, Company Law Board or the Registrar of companies, as the case may be.

*Every offence connected with/arising out of acceptance of deposits shall be a cognizable offence;

*The dividend/interim dividend shall be paid to shareholders within 30 days;

*The board report shall include a Directors' Responsibility Statement to highlight the accountability of directors in good corporate governance;

*Public listed companies with a paid-up capital of Rs 5 crore or more shall set up an Audit Committee of the Board of Directors;

*No person can hold office of director in more than 15 companies at a time;

*A listed public limited company may get any resolution passed by means of a postal ballot (including voting by electronic mode) instead of transacting the business in a general meeting of the company;

*The amounts of monetary penalty in respect of offences under the Act have been increased by about 10 times.

Edited-extracts from NSE News published by the National Stock Exchange of India.