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Public Issue Management – Problems and Procedures

Sr No. Contents Page No.

1 Initial Public Offer 2

2 Eligibility Requirements Main Board 4

3 Checklist of Documents to be submitted 11

4 Public Issue Process 16

5 Guidelines for Book Building 17

6 Reverse Book Building 18

7 Institutional Placement Programee 19

8 A.S.B.A 22

9 Direct Listing 24

10 SME Listing 27

11 Eligibility S.M.E Exchange 30

12 Difference in Main Board & SME

Exchange

36

13 Cost of Listing 37

14 Institutional Trading Platform 38

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Public Issue Management – Problems and Procedures

Initial Public Offering (IPO)

Initial Public Offer (IPO) is a process through which an unlisted Company can be listed on the

stock exchange by offering its securities to the public in the primary market. The object of an

IPO may be relating to expansion of existing activities of the Company or setting up of new

projects or any other object as may be specified by the Company in its offer document or just to

get its existing equity shares listed by diluting the stake of existing equity shareholders through

offer for sale.

Listing means admission of securities to dealings on a recognised stock exchange. The securities

may be of any public limited company, Central or State Government, quasi governmental and

other financial institutions/corporations, municipalities, etc.

The objectives of listing are mainly to :

� provide liquidity to securities;

� mobilize savings for economic development;

� protect interest of investors by ensuring full disclosures.

Benefits of Listing

Listing provides an exclusive privilege to securities in the stock ex¬change. Only listed shares

are quoted on the stock exchange. Stock exchange facilitates transparency in transactions of

listed securities in perfect equality and competitive conditions. Listing is beneficial to the

company, to the investor, and to the public at large.

The important advantages of listing are listed below:

• Fund Raising and exit route to investors

Listing provides an opportunity to the corporates / entrepreneurs to raise capital to fund

new projects/undertake expansions/diversifications and for acquisitions. Listing also

provides an exit route to private equity investors as well as liquidity to the ESOP-holding

employees.

• Ready Marketability of Security

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Listing brings in liquidity and ready marketability of securities on a continuous basis

adding prestige and importance to listed companies.

• Ability to raise further capital

An initial listing increases a company's ability to raise further capital through various

routes like preferential issue, rights issue, Qualified Institutional Placements and

ADRs/GDRs/FCCBs, and in the process attract a wide and varied body of institutional

and professional investors.

• Supervision and Control of Trading in Securities

The transactions in listed securities are required to be carried uniformly as per the rules

and bye-laws of the exchange. All transactions in se¬curities are monitored by the

regulatory mechanisms of the stock exchange, preventing unfair trade practices. It

improves the confidence of small investors and protects them.

• Fair Price for the Securities

The prices are publicly arrived at on the basis of demand and supply; the stock exchange

quotations are generally reflective of the real value of the security. Thus listing helps

generate an independent valuation of the company by the market.

• Timely Disclosure of Corporate Information

The listing agreement signed with the exchange provides for timely dis¬closure of

information relating to dividend, bonus and right issues, book clo¬sure, facilities for

transfer, company related information etc by the company. Thus providing more

transparency and building investor confidence.

• Collateral Value of Securities

Listed securities are acceptable to lenders as collateral for credit facili¬ties. A listed

company can also borrow from financial institutions easily as it is rated favorably by

lenders of capital; the company can also raise additional funds from the public through

the new issue market with a greater degree of assurance.

• Better Corporate Practice

Since the violation of the listing agreement entails the de-listing/suspension of securities

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from the rings of the exchange, the listed companies are ex¬pected to follow fair

practices to the advantage of investors and public.

• Benefits to the Public

The data daily culled out by the stock exchange in the form of price quotations and

others; provide valuable information to the public which can be used for project and

research studies. The stock exchange prices can be an index of the state of the economy.

Financial institutions, NRl, individual investor’s etc. can take wise decisions before

making investments.

• Subdivision and Consolidation of Holdings

Stock exchange bye-laws provide for explicit rules for sub division and consolidation of

securities as desired by the investors. There is special trading sessions in the exchange for

conversion of odd lots into market lots arranged by financial and institutional investors.

Thus listing helps to provide flexibility to investors in the subdivision and consolidation

of their holdings with speed and earnestness.

Eligibility Requirements:

The Listing Requirements differs from exchange to exchange, there are different eligibility

criteria for listing on NSE and BSE. Following are the Eligibility which are to be fulfilled by the

companies before listing on stock exchange.

• Main Board Requirements :

� Paid up Capital

The paid up equity capital of the applicant shall not be less than 10 crores * and the

capitalisation of the applicant's equity shall not be less than 25 crores**

* Explanation 1

For this purpose, the post issue paid up equity capital for which listing is sought shall be taken

into account.

** Explanation 2

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For this purpose, capitalisation will be the product of the issue price and the post issue number of

equity shares. In respect of the requirement of paid-up capital and market capitalisation, the

issuers shall be required to include, in the disclaimer clause of the Exchange required to put in

the offer document, that in the event of the market capitalisation (Product of issue price and the

post issue number of shares) requirement of the Exchange not being met, the securities would not

be listed on the Exchange.

� Conditions Precedent to Listing:

The Issuer shall have adhered to conditions precedent to listing as emerging from inter-alia from

Securities Contracts (Regulations) Act 1956, Companies Act 1956, Securities and Exchange

Board of India Act 1992, any rules and/or regulations framed under foregoing statutes, as also

any circular, clarifications, guidelines issued by the appropriate authority under foregoing

statutes.

� Atleast three years track record of either:

� the applicant seeking listing; or

� the promoters****/promoting company, incorporated in or outside India or

� Partnership firm and subsequently converted into a Company (not in existence as a

Company for three years) and approaches the Exchange for listing. The Company

subsequently formed would be considered for listing only on fulfillment of conditions

stipulated by SEBI in this regard.

For this purpose, the applicant or the promoting company shall submit annual reports of three

preceding financial years to Stock Exchange and also provide a certificate to the Exchange in

respect of the following:

� The company has not been referred to the Board for Industrial and Financial

Reconstruction (BIFR).

� The networth of the company has not been wiped out by the accumulated losses resulting

in a negative networth

� The company has not received any winding up petition admitted by a court.

****Promoters mean one or more persons with minimum 3 years of experience of each of them

in the same line of business and shall be holding at least 20% of the post issue equity share

capital individually or severally.

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� The applicant desirous of listing its securities should satisfy the exchange on the

following:

� No disciplinary action by other stock exchanges and regulatory authorities in past three

years

� There shall be no material regulatory or disciplinary action by a stock exchange or

regulatory authority in the past three years against the applicant company. In respect of

promoters/promoting company(ies), group companies, companies promoted by the

promoters/promoting company(ies) of the applicant company, there shall be no material

regulatory or disciplinary action by a stock exchange or regulatory authority in the past

one year.

� Redressal Mechanism of Investor grievance

The points of consideration are:

1. The applicant, promoters/promoting company(ies), group companies, companies

promoted by the promoters/promoting company(ies) track record in redressal of investor

grievances

2. The applicant's arrangements envisaged are in place for servicing its investor.

3. The applicant, promoters/promoting company(ies), group companies, companies

promoted by the promoters/promoting company(ies) general approach and philosophy to

the issue of investor service and protection

4. defaults in respect of payment of interest and/or principal to the debenture/bond/fixed

deposit holders by the applicant, promoters/promoting company(ies), group companies,

companies promoted by the promoters/promoting company(ies) shall also be considered

while evaluating a company's application for listing. The auditor's certificate shall also be

obtained in this regard. In case of defaults in such payments the securities of the applicant

company may not be listed till such time it has cleared all pending obligations relating to

the payment of interest and/or principal.

� Distribution of shareholding

The applicant's/promoting company(ies) shareholding pattern on March 31 of last three calendar

years separately showing promoters and other groups' shareholding pattern should be as per the

regulatory requirements.

� Details of Litigation

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The applicant, promoters/promoting company(ies), group companies, companies promoted by

the promoters/promoting company(ies) litigation record, the nature of litigation, status of

litigation during the preceding three years period need to be clarified to the exchange.

� Track Record of Director(s) of the Company

In respect of the track record of the directors, relevant disclosures may be insisted upon in the

offer document regarding the status of criminal cases filed or nature of the investigation being

undertaken with regard to alleged commission of any offence by any of its directors and its effect

on the business of the company, where all or any of the directors of issuer have or has been

charge-sheeted with serious crimes like murder, rape, forgery, economic offences etc.

Note:

a) In case a company approaches the Exchange for listing within six months of an IPO, the

securities may be considered as eligible for listing if they were otherwise eligible for

listing at the time of the IPO. If the company approaches the Exchange for listing after

six months of an IPO, the norms for existing listed companies may be applied and market

capitalisation be computed based on the period from the IPO to the time of listing.

An Issuer has to take various steps prior to making an application for listing its securities

on the Stock Exchange. These steps are essential to ensure the compliance of certain

requirements by the Issuer before listing its securities on the Stock Exchange. The various

steps to be taken include:

� Submission of Memorandum & Articles of Association

Rule 19(2) (a) of the Securities Contracts (Regulation) Rules, 1957 requires that the Articles of

Association of the Issuer wanting to list its securities must contain provisions as given hereunder.

The Articles of Association of an Issuer shall contain the following provisions namely:

1. that there shall be no forfeiture of unclaimed dividends before the claim becomes barred

by law;

2. that a common form of transfer shall be used;

3. that fully paid shares shall be free from all lien and that in the case of partly paid shares

the Issuer's lien shall be restricted to moneys called or payable at a fixed time in respect

of such shares;

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4. that registration of transfer shall not be refused on the ground of the transferor being

either alone or jointly with any other person or persons indebted to the Issuer on any

account whatsoever;

5. that any amount paid up in advance of calls on any share may carry interest but shall not

in respect thereof confer a right to dividend or to participate in profits;

6. that option or right to call of shares shall not be given to any person except with the

sanction of the Issuer in general meetings.

7. permission for Sub-Division/Consolidation of Share Certificate.

Note: The Relevant Authority may take exception to any provision contained in the Articles of

Association of an Issuer which may be deemed undesirable or unreasonable in the case of a

public company and may require inclusion of specific provisions deemed to be desirable and

necessary.

If the Issuer's Articles of Association is not in conformity with the provisions as stated above, the

Issuer has to make amendments to the Articles of Association. However, the securities of an

Issuer may be admitted for listing on the NSE on an undertaking by the Issuer that the

amendments necessary in the Articles of Association to bring Articles of Association in

conformity with Rule 19(2)(a) of the Securities Contract (Regulation) Rules, 1957 shall be made

in the next annual general meeting and in the meantime the Issuer shall act strictly in accordance

with prevalent provisions of Securities Contract (Regulation) Act, 1957 and other statutes.

It is to be noted that any provision in the Articles of Association which is not in tune with sound

corporate practice has to be removed by amending the Articles of Association.

� Preperation , Filing & Approval of Draft Prospectus :

The Issuer shall file the draft prospectus and application forms with Stock Exchange. The draft

prospectus should have been prepared in accordance with the statutes, notifications, circulars,

guidelines, etc. governing preparation and issue of prospectus prevailing at the relevant time. The

Issuers may particularly bear in mind the provisions of Companies Act, Securities Contracts

(Regulation) Act, the SEBI Act and the relevant subordinate legislations thereto. Stock Exchange

will peruse the draft prospectus only from the point of view of checking whether the draft

prospectus is in accordance with the listing requirements, and therefore any approval given by

Stock Exchange in respect of the draft prospectus should not be construed as approval under any

laws, rules, notifications, circulars, guidelines etc. The Issuer should also submit the SEBI

acknowledgment card or letter indicating observations on draft prospectus or letter of offer by

SEBI.

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The issuer can also file the Draft Red hearing Prospectus to the stock exchange if the company

wants to go into book building process. This process helps the company for price discovery of

shares in the market. The company has to mention the floor price and maximum price of offer in

the prospectus.

� Submission of Application :

� For Issuers listing on Stock Exchange for the first time

Issuers desiring to list existing/new securities on the Stock Exchange shall make application for

admission of their securities to dealings on the Stock Exchange in the forms prescribed in this

regard as per details given hereunder or in such other form or forms as the Relevant Authority

may from time to time prescribe in addition thereto or in modification or substitution thereof.

Appendix 'A' - Clauses of Articles of Association.

Appendix 'B'- Application Letter for Listing.

Appendix 'C-1' - Listing Application providing pre-issue details of securities.

Appendix 'C-2' - Listing Application providing post-issue details of securities.

Appendix 'D'- Checklist for supporting documents ( as applicable to the issuer)

Appendix 'E' - Schedule of Distribution

Appendix 'F'- Listing Agreement

� Listing of further Issues by Issuers already listed on Stock Exchange

Issuers whose securities are already listed on the Stock Exchange shall apply for admission to

listing on the Stock Exchange of any further issue of securities made by them. The application

for admission shall be made in the forms prescribed in this regard or in such other form or forms

as the Relevant Authority may from time to time prescribe in addition thereto or in modification

or substitution thereof.

Appendix 'E' - Schedule of Distribution.

Appendix 'G'- Application Letter for Listing of further issues.

Appendix 'H' - Listing Application providing details of securities.

Appendix 'I' - Checklist for supporting documents submitted (as applicable).

� Security Deposit in case designated exchange is NSE

(Payable only for new and fresh issues and when NSE is the Designated Stock Exchange)

The Relevant Authority shall not grant admission to dealings of securities of an Issuer which is

not listed or of any new (original or further) issue of securities of an Issuer excepting Mutual

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Funds, which is listed on the NSE unless the Issuer deposits and keeps deposited with the NSE

(in cases where the securities are offered for subscription, whether through the issue of a

prospectus, letter of offer or otherwise, and NSE is the Regional Stock Exchange for the Issuer)

an amount calculated at 1% of the amount of securities offered for subscription to the public and

or to the holders of existing securities of the Issuer, as the case may be for ensuring compliance

by the Issuer within the prescribed or stipulated period of all requirements and conditions

hereinafter mentioned and shall be refundable or forfeitable in the manner hereinafter stated:

� The Issuer shall comply with all prevailing requirements of law including all

requirements of and under any notifications, directives and guidelines issued by the

Central Government, SEBI or any statutory body or local authority or any body or

authority acting under the authority or direction of the Central Government and all

prevailing listing requirements and conditions of the NSE and of each recognized Stock

Exchange where the Issuer has applied for permission for admission to dealings of the

securities, within the prescribed or stipulated period;

� If the Issuer has complied with all the aforesaid requirements and conditions including,

wherever applicable, its obligation under Section 73 (or any statutory modification or re-

enactment thereof) of the Companies Act, 1956 and obligations arising therefrom, within

the prescribed or stipulated period, and on obtaining a No Objection Certificate from

SEBI and submitting it to NSE , NSE shall refund to the Issuer the said deposit without

interest within fifteen days from the expiry of the prescribed or stipulated period;

� If on expiry of the prescribed or stipulated period or the extended period referred to

hereafter, the Issuer has not complied with all the aforesaid requirements and conditions,

the said deposit shall be forfeited by the NSE, at its discretion, and thereupon the same

shall vest in the NSE. Provided the forfeiture shall not release the Issuer of its obligation

to comply with the aforesaid requirements and conditions;

� If the Issuer is unable to complete compliance of the aforesaid requirements and

conditions within the prescribed or stipulated period, the NSE, at its discretion and if the

Issuer has shown sufficient cause, but without prejudice to the obligations of the Issuer

under the laws in force to comply with any such requirements and conditions within the

prescribed or stipulated period, may not forfeit the said deposit but may allow such

further time to the Issuer as the NSE may deem fit; provided that

1. the Issuer has at least ten days prior to expiry of the prescribed or stipulated

period applied in writing for extension of time to the NSE stating the reasons for

non-compliance, and

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2. the Issuer, having been allowed further time by the NSE, has before expiry of the

prescribed or stipulated period, published in a manner required by the NSE, the

fact of such extension having been allowed; provided further that where the NSE

has not allowed extension in writing before expiry of the prescribed or stipulated

period, the request for extension shall be deemed to have been refused; provided

also that any such extension shall not release the Issuer of its obligations to

comply with the aforesaid requirements and conditions.

� 50% of the above mentioned security deposit should be paid to the NSE in cash. The

balance amount can be provided by way of a bank guarantee, in the format prescribed by

or acceptable to NSE. The amount to be paid in cash is limited to Rs.3 crores.

� Supporting Documents

� Documents and Information

The documents and information prescribed in Appendix D or Appendix I (as the case may be) to

this Regulation or such other documents and information as the Relevant Authority may from

time to time prescribe, in addition thereto or in modification or substitution thereof together with

any other documents and information which the Relevant Authority may require in any particular

case;

� Distribution Schedules

Distribution Schedules duly completed in respect of each class and kind of security in the form

prescribed in Appendix E (Table I, II & III) to this Regulation or in such other form or forms as

the Relevant Authority may from time to time prescribe in addition thereto or in modification or

substitution thereof.

Checklist of Documents to be submitted to the Exchange by the company for seeking permission to use the

name of the Exchange in the offer document

Annexure

No.

Particulars Submitted:

Yes/No

1 Certified true copy of the Annual Reports of the Company for the last 5 financial

years. (If the Company is in existence for less than 5 years then all the annual reports

since Company inception)

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2 Certificate from the applicant company /promoting companies stating the following:

• The Company has not been referred to the Board for Industrial and Financial

Reconstruction (BIFR).

• The networth of the Company has not been wiped out by accumulated losses

resulting in a negative networth.

• The company has not received any winding up petition accepted by a court.

3 Certificate from the Issuer confirming

� That it would meet the post issue share capital and post issue market

capitalization requirement of the Exchange of Rs.10 crores and Rs. 25 crores

respectively at the time of listing.

� That the issuer has adhered to conditions precedent to listing as emerging

inter-alia from Securities Contracts (Regulations) Act, Companies Act 1956,

Securities and Exchange Board of India Act, 1992, any rules and/or

regulations framed under foregoing statues, and also any circular,

clarifications, guidelines issued by the appropriate authority under foregoing

statues.

� That the applicant company, its promoters/ promoting company(ies), group

companies, companies promoted by the promoters/promoting company(ies),

has not been in default in payment of listing fees to any stock exchange in the

last three years or has not been delisted or suspended in the past and not been

proceeded against by SEBI or other regulatory authority in connection with

investor related issues or otherwise.

� That 100% of Promoter Shareholding shall be held in dematerialized form

post listing of equity shares of the company.

� That the 50% of Non-Promoter Shareholding shall be held in dematerialized

form post listing of equity shares of the company.

� That there are no restrictive clauses in the Articles of Association of the

Company

� That the provisions of the Memorandum and Articles of Association are not

inconsistent with the clauses of the Listing agreement or any other applicable

law, Rules or Regulations.

4 Details of Disciplinary action taken by any stock exchange/ regulatory authority

against the applicant company, its promoters/ promoting company(ies), group

companies, companies promoted by the promoters/promoting company(ies), in the

past three years.

5 Copy of all show cause notice (s)/ order (s)/ issued by any regulatory authority (e.g.

SEBI, ROC, RBI, CLB, Stock exchange etc.) and correspondence there to.

6 Confirmation regarding the applicant company’s, its promoters’/ promoting

companies’, companies promoted by the promoters’/promoting company(ies), group

companies’:

a. Track record in redressal of investor grievances

b. Arrangements envisaged for servicing its investor

c. General approach and philosophy to the issue of investor service and

protection.

d. Defaults in respect of payment of interest and/or principal to the debenture

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/bond /fixed deposit holders if any.

In case of defaults in such payments the securities, the applicant company may not

be listed till such time it has cleared all pending obligations relating to the payment

of interest and/or principal. Auditor’s certificate shall also be obtained in this regard.

7 The applicant’s shareholding pattern on March 31 for last three years separately

showing promoters and other groups’ shareholding pattern in the specified format of

Listing agreement.

8 Details on the track record of the directors as regards to status of criminal cases filed

or nature of the investigation being undertaken with regard to alleged commission of

any offence by any of its directors and its effect on the business of the company,

where all or any of the directors of issuer have or has been charge-sheeted with

serious crimes.

9 Details regarding compliance with the latest provisions of Clause 49 of the Listing

agreement relating to Corporate Governance from the Company Secretary of the

Company.

Confirmation from Statutory Auditor/ Practicing C.A./ Practicing Company

Secretary stating the issuer is compliant with the latest Clause 49 of the Listing

Agreement

10 Certified true copy of Memorandum & Articles of Association of the Company

11 Appendix A (pertaining to Articles of Association) to be filled up in the format

enclosed. Further the Company is required to confirm that

12 Certified true copy of Form 32 filed with the Registrar of Companies for

appointment of Company Secretary and receipt issued by ROC acknowledging the

same.

13 Certified true copies of the holding of the promoters/promoting companies in the

applicant company for last 3 years as on 31st March in the format as given below:

Name Address No. of

shares

% shareholding

In case the Company has been promoted by promoting companies then the details of

the shareholding of the promoters in the promoting company as on March 31 of the

last 3 financial years shall also be provided in the above format.

14 Copy of letter issued by bank sanctioning loan

15 All the Correspondences with SEBI pursuant to filing of DRHP

16 Merchant Bankers Undertaking in the format prescribed by the Exchange

17 Copies of all the Material contracts and documents

18 PAN Details of Promoters & Directors (In Excel Format)

19 DIN Details of Directors (In Excel Format)

20 3 copies of the DRHP (In Soft Copy also)

21 Processing Fee + Service Tax

Date

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Place

Authorized Signatory and

Stamp of the company

Name

Designation

Note:

� All pages of the documents/details provided must bear rubber stamp of

company and initials of authorized signatory.

� The Exchange reserves the right to ask for documents other than those

mentioned above.

APPENDIX A

Listing Requirements Relating To “Articles of Association”

(Please mention the clauses and the corresponding page references in your Articles of

Association for the clauses given hereunder)

Sr.

No.

The Articles of Association of an Issuer shall

contain the following provisions namely

Clause Ref : Page Ref :

1. That a common form of transfer shall be used;

2. That fully paid shares shall be free from all lien and

that in the case of partly paid shares the Issuer’s lien

shall be restricted to moneys called or payable at a

fixed time in respect of such shares;

3. That registration of transfer shall not be refused on the

ground of the transferor being either alone or jointly

with any other person or persons indebted to the Issuer

on any account whatsoever;

4. That any amount paid up in advance of calls on any

share may carry interest but shall not in respect thereof

confer a right to dividend or to participate in profits;

5. That there shall be no forfeiture of unclaimed dividends

before the claim becomes barred by law;

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6. That option or right to call of shares shall not be given

to any person except with the sanction of the Issuer in

general meetings.

7. Permission for sub-division/consolidation of share

certificates.

Further, the Company is requested to confirm that the provisions of the Memorandum and

Articles of Association are not inconsistent with the clauses of the Listing agreement or any

other applicable law, Rules or Regulations.

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Public Issue Process

Corporates may raise capital in the primary market by way of an initial public offer, rights issue

or private placement. An Initial Public Offer (IPO) is the selling of securities to the public in the

primary market. This Initial Public Offering can be made through the fixed price method, book

building method or a combination of both.

There are two types of Public Issues:

Issue Type Offer Price Demand Payment Reservations

Fixed Price Issues

Price at which

the securities

are offered

and would be

allotted is

made known

in advance to

the investors

Demand for

the

securities

offered is

known only

after the

closure of

the issue

100 % advance

payment is

required to be

made by the

investors at the

time of

application.

50 % of the

shares offered

are reserved for

applications

below Rs. 1

lakh and the

balance for

higher amount

applications.

BookBuildingIssues

A 20 % price

band is

offered by the

issuer within

which

investors are

allowed to bid

and the final

price is

determined by

the issuer only

after closure

of the bidding.

Demand for

the

securities

offered ,

and at

various

prices, is

available on

a real time

basis on the

BSE

website

during the

bidding

period..

10 % advance

payment is

required to be

made by the

QIBs along

with the

application,

while other

categories of

investors have

to pay 100 %

advance along

with the

application.

50 % of shares

offered are

reserved for

QIBS, 35 % for

small investors

and the balance

for all other

investors.

More About Book Building

Book Building is essentially a process used by companies raising capital through Public

Offerings-both Initial Public Offers (IPOs) or Follow-on Public Offers ( FPOs) to aid price and

demand discovery. It is a mechanism where, during the period for which the book for the offer is

open, the bids are collected from investors at various prices, which are within the price band

specified by the issuer. The process is directed towards both the institutional as well as the retail

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investors. The issue price is determined after the bid closure based on the demand generated in

the process.

The Process:

• The Issuer who is planning an offer nominates lead merchant banker(s) as 'book runners'.

• The Issuer specifies the number of securities to be issued and the price band for the bids.

• The Issuer also appoints syndicate members with whom orders are to be placed by the

investors.

• The syndicate members input the orders into an 'electronic book'. This process is called

'bidding' and is similar to open auction.

• The book normally remains open for a period of 5 days.

• Bids have to be entered within the specified price band.

• Bids can be revised by the bidders before the book closes.

• On the close of the book building period, the book runners evaluate the bids on the basis

of the demand at various price levels.

• The book runners and the Issuer decide the final price at which the securities shall be

issued.

• Generally, the number of shares are fixed, the issue size gets frozen based on the final

price per share.

• Allocation of securities is made to the successful bidders. The rest get refund orders.

Guidelines for Book Building

Rules governing Book building are covered in Chapter XI of the Securities and Exchange Board

of India (Disclosure and Investor Protection) Guidelines 2000.

BSE's Book Building System (Example)

• BSE offers a book building platform through the Book Building software that runs on the

BSE Private network.

• This system is one of the largest electronic book building networks in the world,

spanning over 350 Indian cities through over 7000 Trader Work Stations via leased lines,

VSATs and Campus LANS.

• The software is operated by book-runners of the issue and by the syndicate members , for

electronically placing the bids on line real-time for the entire bidding period.

• In order to provide transparency, the system provides visual graphs displaying price v/s

quantity on the BSE website as well as all BSE terminals.

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Reverse Bookbuilding Securities and Exchange Board of India has issued the SEBI (Delisting of Equity Shares)

Regulations 2009 for voluntary delisting of equity shares from stock exchanges which provide

the overall framework for voluntary delisting by a promoter or acquirer through a process

referred to as Reverse Book Building.

The promoter or acquirer shall appoint a Merchant Banker and also a trading member for placing

bids on the online electronic system. The Merchant Banker and promoter shall make a public

announcement and also dispatch a letter of offer to the public shareholders along with a bidding

form. Shareholders may approach the trading member for placing offers on the on-line electronic

system with the bidding form. The shareholders desirous of availing the exit opportunities are

required to tender their shares to the trading members prior to placement of orders. Alternately,

they may mark a pledge for the shares.

The final offer price shall be determined as the price at which the maximum number of shares

has been offered. The promoter shall have the choice to accept / not accept the price. If the price

is accepted, the promoter shall be required to accept all valid offers upto and including the final

price. However, if the quantity eligible for acquiring securities at the final price offered does not

result in promoter holding crossing the limits specified in the Regulations, the offer shall be

deemed to have failed and the company shall remain listed.

At the end of the offer, the merchant banker to the book building exercise shall announce the

final price and the acceptance (or not) of the price by the promoter. Any remaining public

shareholders may tender shares to the promoter at the same final price upto a period of one year

from the date of delisting.

Special provisions have been provided in case of voluntary delisting of small companies. Equity

shares of such companies may be delisted without following the Reverse Book Building process

and by following a separate procedure specified in the Regulations.

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Institutional Placement Programme

Securities Exchange Board of India (SEBI) vide its notification dated January 30, 2012 has

amended the Issue of Capital and Disclosure Requirements Regulations, 2009 whereby Chapter

VIII-A - Institutional Placement Programme (IPP) has been inserted.

The provisions of this ChaThe provisions of this Chapter shall apply to issuance of fresh shares

and or offer for sale of shares in a listed issuer for the purpose of achieving minimum public

shareholding in terms of Rule 19(2)(b) and 19A of the Securities Contracts (Regulation) Rules,

1957.

Definitions:

• For the purpose of this Chapter: shares of same class listed and traded in the stock

exchange(s);

• "eligible seller" include listed issuer, promoter/promoter group of listed issuer;

• "institutional placement programme" means a further public offer of eligible securities by

an eligible seller, in which the offer,allocation and allotment of such securities is made

only to qualified institutional buyers in terms of this Chapter.

Conditions for Institutional Placement Programme

• An institutional placement programme may be made only after a special resolution

approving the institutional placement programme has been passed by the shareholders of

the issuer in terms of section 81(1A) of the Companies Act, 1956.

• No partly paid-up securities shall be offered.

• The issuer shall obtain an in-principle approval from the stock exchange(s).

Appointment of Merchant Banker

An institutional placement programme shall be managed by merchant banker(s) registered with

the Board who shall exercise due diligence.

Offer Document

• The institutional placement programme shall be made on the basis of the offer document

which shall contain all material information.

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• The issuer shall, simultaneously while registering the offer document with the Registrar

of Companies, file a copy thereof with the Board and with the stock exchange(s) through

the lead merchant banker.

• The issuer shall file the soft copy of the offer document with the Board, along with the

fee.

• The offer document shall also be placed on the website of the concerned stock exchange

and of the issuer clearly stating that it is in connection with institutional placement

programme and that the offer is being made only to the qualified institutional buyers.

• The merchant banker shall submit to the Board a due diligence certificate, stating that the

eligible securities are being issued under institutional placement programme and that the

issuer complies with requirements of this Chapter.

Pricing and Allocation/allotment

• The eligible seller shall announce a floor price or price band at least one day prior to the

opening of institutional placement programme.

• The eligible seller shall have the option to make allocation/allotment as per any of the

following methods -

o proportionate basis;

o price priority basis; or

o criteria as mentioned in the offer document.

• The method chosen shall be disclosed in the offer document.

• Allocation/allotment shall be overseen by stock exchange before final allotment.

Restrictions

• The promoter or promoter group who are offering their eligible securities should not have

purchased and/ or sold the eligible securities of the company in the twelve weeks period

prior to the offer and they should undertake not to purchase and / or sell eligible securities

of the company in the twelve weeks period after the offer.

• Allocation/allotment under the institutional placement programme shall be made subject

to the following conditions:

o Minimum of twenty five per cent. of eligible securities shall be allotted to mutual

funds and insurance companies:Provided that if the mutual funds and insurance

companies do not subscribe to said minimum percentage or any part thereof, such

minimum portion or part thereof may be allotted to other qualified institutional

buyers;

o No allocation/allotment shall be made, either directly or indirectly, to any

qualified institutional buyer who is a promoter or any person related to promoters

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of the issuer:Provided that a qualified institutional buyer who does not hold any

shares in the issuer and who has acquired the rights in the capacity of a lender

shall not be deemed to be a person related to promoters.

• The issuer shall accept bids using ASBA facility only.

• The bids made by the applicants in institutional placement programme shall not be

revised downwards or withdrawn.

Explanation

Qualified Institutional Buyers belonging to the same group shall have the same meaning as

derived from sub-section (11) of section 372 of the Companies Act, 1956.

Restrictions on size of the offer

• The aggregate of all the tranches of institutional placement programme made by the

eligible seller shall not result in increase in public shareholding by more than ten per cent.

or such lesser per cent. as is required to reach minimum public shareholding.

• Where the issue has been oversubscribed, an allotment of not more than ten percent of the

offer size shall be made by the eligible seller.

Period of Subscription and display of demand

• The issue shall be kept open for a minimum of one day or maximum of two days.

• The aggregate demand schedule shall be displayed by stock exchange(s) without

disclosing the price.

Withdrawal of offer

The eligible seller shall have the right to withdraw the offer in case it is not fully subscribed.

Transferability of eligible securities

The eligible securities allotted under institutional placement programme shall not be sold by the

allottee for a period of one year from the date of allocation/allotment, except on a recognised

stock exchange

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Applications Supported by Blocked Amount (ASBA)

SEBI vide its circular no. SEBI/CFD/DIL/DIP/31/2008/30/7 July 30, 2008 introduced a

supplementary process of applying in public issues, viz., the “Applications Supported by

Blocked Amount (ASBA)” process. The ASBA process shall be available in all public issues

made through the book building route.

The main features of ASBA process are as follows:

• Meaning of ASBA: ASBA is an application for subscribing to an issue, containing an

authorisation to block the application money in a bank account.

• 2. Self Certified Syndicate Bank (SCSB): SCSB is a bank which offers the facility of

applying through the ASBA process.

Fees NSE (Example)

• The listing fee applicable from April 1, 2011 is as follows

:

• Particulars • Amount ( )

• Initial Listing Fees • 50,000

• Annual Listing Fees (based on paid up share, bond and/or

debenture capital)

Upto 5 Crore • 18,000

• Above 5 Crore and upto 10 Crores • 31,500

• Above 10 Crore and upto 20 Crores • 57,500

• Above 20 Crore and upto 30 Crores • 90,000

• Above 30 Crore and upto 40 Crores • 1,00,000

• Above 40 Crore and upto 50 Crores • 1,05,000

• Above 50 Crores and upto 100 Crores • 1,75,000

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• Above 100 Crore and upto 150 Crores • 2,00,000

• Above 150 Crore and upto 200 Crores • 2,40,000

• Above 200 Crore and upto 250 Crores • 2,75,000

• Above 250 Crore and upto 300 Crores • 3,10,000

• Above 300 Crore and upto 350 Crores • 3,40,000

• Above 350 Crore and upto 400 Crores • 3,75,000

• Above 400 Crore and upto 450 Crores • 4,35,000

• Above 450 Crore and upto 500 Crores • 5,00,000

• Companies which have a paid up share, bond and/or debenture and/or debt capital, etc of

more than 500 crores will have to pay a minimum fees of 5,00,000/- and an

additional listing fees of 3,400/- for every increase of 5 crores or part thereof in the

paid up share, bond and/ debenture and/or debt capital etc.

• Companies which have a paid up share, bond and/or debenture and/or debt capital, etc. of

more than 1,000 crores will have to pay minimum fees of 8,50,000/- and an additional

listing fees of 3,700/- for every increase of 5 crores or part thereof in the paid up

share, bond and/or debenture and/or debt capital etc.

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Direct Listing

Norms for Direct Listing (EFFECTIVE FROM JANUARY 21, 2013)

Direct Listing Norms applicable for listing of equity shares of listed (listed with other regional stock

exchanges) and exclusively listed companies on Regional Stock Exchanges are given here as under

Sr.No. Particulars Norms

1 Issued and Paid up capital Minimum paid up capital of Rs. 3 crores and positive net worth

2 Networth

3 Profit making track record

Distributable profits in terms of sec. 205 of Companies Act, 1956 for at least 1 out of 2 immediately preceding financial years based on audited financial results .

Provided further that the total period of latest 2 Financial Years should comprise a period of at least 24 months

Provided that extraordinary income shall not be considered for calculating distributable profit.

4 Listing track record with Recognized Stock Exchange Listed on any recognized Stock Exchange

5 Public Shareholding

Public Shareholding should be Meeting with the requirements of SCRA, SCRR and Listing Agreement

If the company is non complaint with respect to clause 40A of the listing agreement at time of applying for direct listing, the company shall submit the undertaking from Managing Director/ person authorized by Board of Directors of the company, that the company shall comply with the clause 40A of the listing agreement as per the extend regulations and timelines stipulated by SEBI

6 No. of public shareholders Minimum 500

7 Trading in Compulsory Demat Minimum of 50% of the public shareholding should be held in demat form

8 Information Memorandum

Information Memorandum as provided in Schedule II of Companies Act, 1956 to the extent applicable, as certified by the

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Company Secretary/ MD of the Company

Note: Not required if the company has been trading in the permitted securities category at BSE for a period of not less than 1 year or is listed on any Exchange with nationwide trading terminals

9 Withdrawal/ Rejection Companies can make a fresh application after a period of 3 months

10 Confirmation from RSE

The company shall submit a confirmation from any one of the recognized or regional stock exchange(s) :

a. Entire issued capital of the company must be listed on the recognized stock exchange

b. No investor complaints pending against the company

c. The securities proposed to be listed are not under suspension.

11 Compliance Status by Company

The company shall furnish the compliance status with the critical clauses of the listing agreement viz. Clauses 15, 16, 31, 35, 40a, 41, 47, 49, 54 and Sec Audit, filings under SEBI regulations/ circulars, SCRA and SCRR for the last 1 year

12 Action against company/ promoters/ promoter group entities/ directors

Where the company or the promoters or promoter group entities or the directors are have been debarred or disciplinary action taken by SEBI or a recognized stock exchange, then a period of at least 1 year has elapsed since the expiry of the debarment period.

13 Reference to BIFR or winding up

Company should not be referred to BIFR and no winding up order should have been passed against the company

14 Company website

The company shall have its own website which is in compliance with Clause 54 of the Listing Agreement containing information about products, management team, annual reports for last three financial years, shareholding pattern, quarterly results, report on corporate governance, code of conduct, name of the company secretary & compliance officer and contact details, RTA - name and contact details

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15 SCORES authentication

Company should have obtained SCORES authentication from SEBI.

The company shall also submit the nil Investors Complaints Report extracted from SCORES.

Notes -

The above norms will not be applicable to companies that are listed on recognized stock exchanges

� But seeking listing through further public offering (FPOs). In such cases, the IPO norms of the

exchange will apply

� But are compulsorily delisted by the exchange under SEBI (Delisting of Securities) Guidelines,

2003 or SEBI (Delisting of Equity Shares) Regulations, 2009. In such cases, the companies can

seek listing by offer of sale through prospectus or further public offering through prospectus.

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SME Listing

� SME Overview

Small and Medium Enterprises (SMEs) are the backbone of a nation's economy. Like any other

major economy, India too enjoys its fair share of SMEs which constitute bulk of the industrial

base, also contributing significantly to the exports and GDP.

SME segment has been a key engine of growth, employment, wealth distribution and effective

mobilization of resources (both capital and skills) in India. Statistically, SME segment

contributes to 45% of the manufactured output, 40% of exports, and is among the largest

generator of employment in the Indian economy. Today, Indian SMEs operate in sectors

ranging from traditional to the most modern industries competing with the bests-of-the-world.

SMEs in new economy sectors like IT, ITES, retailing, education, entertainment, media and the

like represent the new and modern face of India. SMEs take a prominent role in social sectors

as well and are known for bringing innovative business models.

With the advent of planned economy in 1951, special role was earmarked for SMEs, which was

given a fillip by the subsequent progressive industrial policies. The Micro, Small, and Medium

Enterprises Development (MSMED) Act, 2006 provided for facilitating the promotion and

development and enhancing the competitiveness of MSMEs (commonly referred to as SMEs)

and for the related matters. A big leap for SMEs was witnessed in 2010, with "The Prime

Minister's Task Force" recommending setting up of dedicated stock exchange/ platform for

SMEs. SEBI, through its circular dated May 18, 2010, laid down framework for setting up a

stock exchange/ trading platform dedicated to SMEs.

� SME Exchange

An SME Exchange is a stock exchange dedicated for trading the shares / securities of SMEs

who otherwise find it difficult to get listed on the Main Board. The concept originated from the

difficulties faced by SMEs in gaining visibility and attracting sufficient trading volumes when

listed along with other stocks on the Main Board of stock exchanges. World over, dedicated

SME trading platforms or exchanges are prevalent, which are known by different names such

as 'Alternate Investment markets' or 'growth enterprises market', 'SME Board' etc. Some of the

known markets for SMEs are AIM (Alternate Investment Market) in UK, TSX Ventures in

Canada, GEM (Growth Enterprise Market) in Hong Kong, MOTHERS (Market of the high-

growth and emerging stocks) in Japan, Catalist in Singapore and the latest initiative in China -

Chinext. As a matter of fact, NASDAQ also started as an SME exchange.

In India, "SME Exchange" is defined in Chapter XB of the Securities and Exchange Board of

India (Issue Of Capital And Disclosure Requirements) Regulations as a trading platform of a

recognized stock exchange or a dedicated exchange permitted by SEBI to list the securities

issued in accordance with Chapter XA of SEBI (ICDR) Regulations and this excludes the Main

Board (which is in turn is defined as a recognized stock exchange having nationwide trading

terminals, other than SME exchange).

To be listed on the SME Exchange, the post-issue paid up capital of the company should not

exceed INR 25 Crore. This means that the SME Exchange is not limited to the Small and

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Medium Scale enterprises which are defined under "The Micro, Small and Medium Enterprises

Development Act, 2006" as enterprises where the investment in plant and machinery does not

exceed INR 10 Crore. As of now, to get listed on the Main Board of National Stock Exchange

(NSE), the minimum paid up capital required is INR 10 Crore and that of Bombay Stock

Exchange (BSE) is INR 3 Crore. Hence, those companies with paid up capital between INR 10

Crore to INR 25 Crore has the option of migrating from SME Exchange to the Main Board or

vice versa. The companies listed on the SME exchange are allowed to migrate to the Main

Board as and when they meet the listing requirements of the Main Board and there shall be

compulsory migration of SMEs from the SME exchange, in case their post issue paid up capital

exceeds INR 25 Crore.

BSE, as an Exchange, is the first-one to seize the initiative followed by NSE, both of them have

come up with their SME Exchanges to leverage their respective trading platforms developed

over the period.

� How does the SME exchange benefit the Small and Medium Enterprises (SME)

• Listing provides an opportunity to the corporates / entrepreneurs to raise capital to fund new

projects / undertake expansions / diversifications and for acquisitions.

• This mode of fund raising through infusion of equity can help the Companies to raise borrowed

funds at efficient rate.

• Equity financing lowers the debt burden leading to lower financing costs and healthier balance

sheets for the firms.

• Listing also provides an exit route to private equity investors as well as liquidity to the ESOP-

holding employees. SME Listing channelizes meaningful Schemes. Listing pre supposes good

Corporate Governance which results in sustainability of the Company.

• Listing also helps generate an independent valuation of the company by the market.

• Listing raises a company's public profile with customers, suppliers, investors, financial

institutions and the media.

• A listed company is typically covered in analyst reports and may also be included in one or more

of indices of the stock exchanges.

• An initial listing increases a company's ability to raise further capital through various routes like

preferential issue, rights issue, Qualified Institutional Placements and ADRs / GDRs / FCCBs,

and in the process attract a wide and varied body of institutional and professional investors.

• Listing leads to better and timely disclosures and thus also protects the interest of the investors.

• Listing provides a continuing liquidity to the shareholders of the entity. This in turn helps

broaden the shareholder base.

• Listed companies generally find that the market perception of their financial and business

strength is enhanced.

• Tax Benefits -

o The sale of unlisted shares in short term attract the capital gain tax upto 30% as applicable to the

tax payer and the long term capital gain tax of 10% without indexation and 20% with indexation.

o The sale of listed securities in the short term attract the capital gain tax of 15% and there is no

long term capital gains tax provided it has been subject to STT. This makes it clear that the

listing of shares on SME is very attractive.

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• All Companies listed on SME Exchange can anytime migrate to the main Board of BSE

provided shareholders approval is accorded.

� SEBI Norms for Listing

In order to lay down the policy for issue, listing and trading of securities to be issued by SMEs,

necessary amendments have been made in the SEBI ICDR Regulations and consequent

amendments have been made into various other regulations viz. :

� SEBI (Merchant Bankers) Regulations 1992

� SEBI (Foreign Institutional Investors) Regulations, 1995

� SEBI (Venture Capital Funds) Regulations, 1996

� SEBI (Substantial Acquisition of Shares and Takeovers) Regulations

and

� SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992

SEBI has, from time to time, issued the circulars and guidelines for setting up of the exchange

for SMEs. SEBI vide “ICDR Third Amendment Regulations” 2010 dated 13th April, 2010,

inserted a new Chapter XB under the head “Issue of Specified Securities by Small and Medium

Enterprises”. A further circular was also issued on 18th May, 2010 after taking into account the

suggestions from market participants for the SME platform. The necessary provisions for

listing of specified securities under the SME Platform vide the above regulations and circulars

are enumerated in brief:

� The post issue face value capital should not exceed INR Twenty Five Crores (INR 25

Crore).

� The minimum application and trading lot size shall not be less than INR 1,00,000/-

� The existing members of stock exchanges (stock brokers) would be eligible to participate

in SME Platform.

� The issues shall be 100% underwritten and merchant bankers shall underwrite 15% in

their own account.

� Besides, SEBI has compulsorily mandated market making for all scrips listed and

traded on SME Platform. The obligations of market making are as follows:

� The merchant bankers to the issue will undertake market making through a stock broker

who is registered as market maker with the SME Platform.

� The merchant bankers shall be responsible for market making for a minimum period of 3

years.

� The market makers are required to provide two way quotes for 75% of the time in a day.

The same shall be monitored by the exchange.

� There will not be more than 5 market makers for a scrip.

� Market makers will compete with other market makers for better price discovery.

� The exchange shall prescribe the minimum spread between the bid and ask price.

� During the compulsory market making period, the promoter holding shall not be eligible

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for the offering to market makers.

� Market Maker shall be allowed to de-register by giving one month notice to the

exchange.

� Trading system may be either order driven or quote driven.

� The application and trading lot size is being kept at INR 1,00,000/- so as to curtail the

exposure of retail investors. It has also been stated that the minimum depth shall be of

one lakh rupees and at any point of time it cannot go below that amount. The investors

holding with value less than INR 1,00,000/- shall be allowed to offer their holding to

the market maker in one lot. However, in functionality the market lot will be subject to

revival after a stipulated time.

� Further, the provisions of SEBI ICDR Regulations apply to SME IPO as well, unless

any particular provision is specifically exempted.

� Eligibility Criteria

Besides, SEBI norms, the stock exchanges have also prescribed eligibility criteria for listing on their

respective SME Exchange:

Eligibility Criteria for BSE SME

BSE SME Exchange stipulates the following eligibility criteria for an applicant desired of getting listed on

BSE SME Exchange :

Net Tangible assets of at least INR 1 crore as per the latest audited financial results.

Net-worth (excluding revaluation reserves) of at least INR 1 crore as per the latest audited

financial results.

Track record of distributable profits (excluding extra-ordinary income) in terms of section 205

of Companies Act, 1956 for at least two years out of immediately preceding three financial

years, with each financial year being a period of at least 12 months. Otherwise, the net-worth

shall be at least INR 3 Crore.

Other Requirements

� The post-issue paid up capital of the company shall be at least INR 1 crore.

� The company shall mandatorily facilitate trading in DEMAT securities and enter

into an agreement with both the depositories.

� The company shall mandatorily have a website.

� Certificate from the applicant company / promoting companies stating the

following : - The Company has not been referred to the Board for Industrial and

Financial Reconstruction (BIFR), although the Companies which are out of BIFR

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are allowed. –

� There is no winding up petition against the company that has been accepted by a

court.

In addition to the above requirements, a visit to the company's site will be undertaken by the

Exchange before granting of approval to use the name of the exchange in the offer document.

It shall also be desirable for the Company to file a compliance certificate by a Practicing

Company Secretary as per the guidance note issued by the Institute of Company Secretaries

of India as an additional eligibility criteria issued by BSE through its circular dated 26-11-

2012.

� Promoters will mandatorily be required to attend an interview with the Listing Advisory

Committee.

� Migration from BSE SME Exchange to the main Board of BSE

Eligibility Criteria for NSE Emerge

NSE Emerge stipulates the following eligibility criteria for an applicant desired of getting listed

on NSE Emerge platform :

� The post issue paid up capital of the company (face value) shall not be more than INR

25 crore.

� . The company should have track record of at least 3 years.

� The company should have positive cash accruals (earnings before depreciation and tax)

from operations for at least 2 financial years preceding the application and its net-worth

should be positive.

� The applicant Company has not been referred to Board for Industrial and Financial

Reconstruction (BIFR).

� No petition for winding up is admitted by a Court of competent jurisdiction against the

applicant Company.

� No material regulatory or disciplinary action by a stock exchange or regulatory

authority in the past three years against the applicant company.

The following matters should be disclosed in the offer document:

• Any material regulatory or disciplinary action by a stock exchange or regulatory authority

in the past one year in respect of promoters/promoting company(ies), group companies,

companies promoted by the promoters/promoting company(ies) of the applicant company.

• Defaults in respect of payment of interest and/or principal to the debenture/bond/fixed

deposit holders, banks, FIs by the applicant, promoters/promoting company(ies), group

companies, companies promoted by the promoters/promoting company(ies) during the past

three years. An auditor's certificate shall also be provided by the issuer to the exchange, in

this regard.

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• The applicant, promoters/promoting company(ies), group companies, companies

promoted by the promoters/promoting company(ies) litigation record, the nature of

litigation and status of litigation.

• In respect of the track record of the directors, the status of criminal cases filed or nature

of the investigation being undertaken with regard to alleged commission of any offence by

any of its directors and its effect on the business of the company, where all or any of the

directors of issuer have or has been charge-sheeted with serious crimes like murder, rape,

forgery, economic offences etc.

� Modes Of Listing:

Book Built Issue

An issuer company desirous of getting listed on SME Exchange is allowed to freely price the

issue. The basis of issue price is required to be disclosed in the offer document, whereby the

issuer needs to disclose in detail about the qualitative and quantitative factors justifying the

issue price. The Issuer can mention a price band of 20% (cap in the price band should not be

more than 20% of the floor price) in the draft offer documents filed and actual price can be

determined at a later date before filing of the final offer document with Exchange/ROCs.

Price Discovery through Book Building Process

As defined in Regulation 2(1) of SEBI ICDR Regulations,"Book Building" means a process

undertaken by which a demand for the securities proposed to be issued is elicited and built up

and the price for the securities is assessed on the basis of the bids obtained for the quantum of

securities offered for subscription by the issuer. This method provides an opportunity to the

market to discover the price for securities.

The process is named so because it refers to collection of bids from investors, which is based

on a price range. The issue price is fixed after the closing date of the bid.

A company planning an IPO/FPO appoints a merchant bank as a book runner. A particular

time frame is fixed as the bidding period. The book runner then builds an order book that

collates bids from various investors. Potential investors are allowed to revise their bids at any

time during the bidding period. At the end of bidding period the order book is closed and

consequently the quantum of shares ordered and the respective prices offered are known. The

determination of final price is based on demand at various prices.

Corporate may raise capital in the primary market by way of initial public offer, right issue,

or private placement. An Initial Public Offer (IPO) or Follow on Public offers (FPO) to aid

price and demand discovery. It is a mechanism where, during the period for which the book

for the offer is open, the bids are collected from investors at various prices, which are within

the price band specified by the issuer. The process is directed towards both the institutional as

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well as the retail investors. The issue price is determined after the bid closure based on the

demand generated in the process. .

Price Band

The offer document may have a floor price at which or a price band within which the

investors can bid. The spread between the floor and the cap of the price band cannot be more

than 20%. In other words, it means that the cap should not be more than 120% of the floor

price. The company decides the price band in consultation with the merchant bankers, and

typically after undertaking a pre-marketing exercise with leading QIBs.

The price band can have a revision. SEBI requires that any revision in the price band has to

be widely disseminated by informing the stock exchanges, by issuing press release and also

indicating the change on the relevant website and the terminals of the syndicate members.

When the price band is revised, the bidding period has to be extended for a further period of

three days, subject to the total bidding period not exceeding thirteen days.

Floor Price

Floor price is the minimum price at which bids can be made.

Cut-off Price

In a book building issue, the issuer is required to indicate either the price band or a floor price

in the red herring prospectus. The actual discovered issue price can be any price in the price

band or any price above the floor price. This issue price is called "Cut off price". This is

decided by the issuer and the lead manager to the issue after considering the book and

investors' appetite for the stock. SEBI ICDR Regulations permit only retail individual

investors to have an option of applying at cut off price as such.

Issue / Bidding Period

Any public issue is required to be kept open for at least three working days but not more than

ten working days including the days for which the issue is kept open in case of revision in

price band. In case the price band in a public issue made through the book building process is

revised, the bidding (issue) period disclosed in the red herring prospectus shall be extended

for a minimum period of three working days, provided that the total bidding period shall not

exceed ten working days. The public issue made by an infrastructure company, satisfying the

requirements in Clause 2.4.1 (iii) of Chapter II may be kept open for a maximum period of 21

working days.

Final Issue Price

The demand at various price levels within the price band is made available on the websites of

the designated stock exchanges during the entire tenure of the issue and once the issue closes,

the final price is determined by the issuer and made known to the investors.

Pure Auction as an Additional Book building Mechanism

SEBI has decided to introduce an additional method of book building, to start with, for FPOs,

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in which the issuer would decide on a floor price and may mention the floor price in the red

herring prospectus. If the floor price is not mentioned in the red herring prospectus, the issuer

shall announce the floor price at least one working day before opening of the bid in all the

newspapers in which the pre-issue advertisement was released.

Qualified institutional buyers shall bid at any price above the floor price. The bidder who bids

at the highest price shall be allotted the number of securities that he has bided for and then the

bidder who has bided at the second highest price and so on, until all the specified securities

on offer are exhausted. Allotment shall be done on price priority basis for qualified

institutional buyers. Allotment to retail individual investors, non-institutional investors and

employees of the issuer shall be made proportionately as illustrated in Schedule XI of SEBI

ICDR Regulations. Where, however the number of specified securities bided for at a price is

more than available quantity, then allotment shall be done on proportionate basis. Retail

individual investors, non-institutional investors and employees shall be allotted specified

securities at the floor price subject to provisions of Clause (d) of Regulation 29 of SEBI

ICDR Regulations.

The issuer may:-

(a) Place a cap either in terms of number of specified securities or percentage of issued

capital of the issuer that may be allotted to a single bidder;

(b) Decide whether a bidder be allowed to revise the bid upwards or downwards in terms of

price and/or quantity;

(c) Decide whether a bidder be allowed single or multiple bids.

The Process

� The issuer who is planning an offer nominates lead merchant banker(s) as 'book

runners'.

� The issuer specifies the number of securities to be issued and the price band for the

bids.

� The issuer also appoints syndicate members with whom orders are to be placed by the

investors.

� The syndicate members input the orders into an 'electronic book'. This process is

called 'bidding' and is similar to open auction.

� The book normally remains open for a period of 5 days.

� Bids have to be entered within the specified price band.

� Bids can be revised by the bidder before the book closes.

� On the close of the book building period, the book runners evaluate the bids on the

basis of the demand at various price levels.

� The book runners and the issuer decide the final price at which the securities shall be

issued.

� Generally, the number of shares is fixed, the issue size gets frozen based on the final

price per share.

� Allocation of securities is made to the successful bidders. The rest get refund orders.

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Guidelines for Book Building

Rules governing the Book Building Process are covered in Chapter XI of the SEBI ICDR

Regulations

Book Building System for BSE

� BSE offers a book building platform through the Book building software that runs on

the BSE Private Networks.

� This system is one of the largest electronic book building networks in the world,

spanning over 350 Indian cities through over 7000 trader work stations via leased

lines, VSATs and Campus LANS.

� The software is operated by book runners of the issue and by the syndicate members,

for electronically placing the bids on line real-time for the entire bidding period.

� In order to provide transparency, the system provides visual graphs displaying price

vs quantity on the BSE website as well as all BSE terminals.

Book Building System for NSE

NSE too has set up a nation-wide network for trading whereby members can trade remotely

from their offices located all over the country. The NSE trading network spans various cities

and towns across India.

NSE decided to offer this infrastructure for conducting online IPOs through the Book

Building process. NSE operates a fully automated screen based bidding system called NEAT

IPO that enables trading members to enter bids directly from their offices through a

sophisticated telecommunication network.

Book Building through the NSE system offers several advantages:

The NSE system offers a nation-wide bidding facility in securities

It provides a fair, efficient & transparent method for collecting bids using

latest electronic trading systems

� Costs involved in the issue are far less than those in a normal IPO

� The IPO market timings are from 10.00 a.m. to 5.00 p.m. On the last day of the IPO,

the session timings can be further extended on specific request by the Book Running

Lead Manager.

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Difference between Main Board & SME Exchange

Parameters Main Board SME Exchange

Post – issue paid up capital (Face value)

Not less than INR 10 crore Any amount less than INR 25 crores

Minimum number of allotees

1000 50

IPO Application Size INR 10,000 - INR 15,000 Minimum of INR 1,00,000

Observation on DRHP By SEBI By Exchange

IPO Grading Mandatory Non Mandatory

Track record Three years of track record of profitability Relaxed norms of Track record

IPO Underwriting Mandatory (however, not required where 50% of the issue offered for subscription

to QIB’s)

Mandatory (100% underwritten, out of which 15% compulsorily by Merchant

Banker)

Time Frame for Listing 6-8 months 2-3 months

Reporting Requirements

Quarterly Half Yearly

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Savings in Cost of Raising an IPO through SME platform

Sr. No. Particulars Cost on Main Board Cost on SME Platform Minimum Savings

in Cost

1) Need for SEBI

Approval & fees

SEBI approval for DRHP

is a preliminary condition

for IPO Fees:-

Based on Issue Size

Min – Rs. 25,000/-

Max – Rs. 3,00,00,000/-

SEBI approval has been

waived off.

Hence this cost is

eliminated.

Rs. 25,000/-

2) Need for In principle

approval of stock

exchanges & fees

There is requirement to

seek in-principle approval

of stock exchanges where

the shares are proposed

to be listed post IPO.

Processing Fees:-

0.05 % of issue size.

Min – Rs. 50,000/-

Max – Rs. 25,00,000/-

In-principle approval of stock

exchanges has been waived

off.

Hence this cost is

eliminated.

Rs. 50,000/-

3) Initial Listing Fees

(BSE)

Rs. 20,000/- Rs. 50,000/- (Rs. 30,000)

4) Annual Listing Fees

(BSE)

Based on paid up

capital

Min – Rs. 80,000/- for Rs.

50 crores

Max - Rs. 62,50,000 plus

Rs. 2500 for every

increase of Rs. 5 crores

or part thereof above

Rs.1000 crores

Based on Market

Capitalization

Min - Rs. 25,000/- upto

Rs. 50 crores and

Max - Rs. 50,000 for above

Rs. 50 crores

Rs. 55,000/-

5) Fees for using the

Book Building

Software

Not Applicable Based on Issue size:-

Upto Rs. 25 crores – 2.5

lakhs

Above Rs. 25 crores – 4

lakhs

-

Total Savings Rs. 100,000/-

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Institutional Trading Platform

In the budget speech, the Honorable Finance Minister, announced that the start ups and SMEs can get

listed on the bourses without IPO. Accordingly, SEBI has made the provision in ICDR guideline by

introducing Chapter XC whereby listing on the Exchange made possible without bringing Initial Public

Offer (IPO). SEBI has notified the same on 8th October 2013 and also issued a detailed circular on 24th

October, 2013. The benefits of listing on ITP are as follows:

• Facilitate capital raising by small and medium enterprises including start-up companies which are

in their early stages of growth

• Provide easier entry and exit options for informed investors like angel investors, VCFs and PEs

etc., to and from such companies.

• Provide better visibility and wider investor base

• Relaxed compliance and cost effective listing

• Tax benefits to long term Investors

The Eligibility Criteria for the company desirous of listing are as follows:

Regulatory Criteria:

• The company, its promoter, group company or director does not appear in the willful defaulters

list of Reserve Bank of India as maintained by Credit Information Bureau (India) Limited

(CIBIL).

• There is no winding up petition against the company that has been admitted by a competent court.

• The company, group companies or subsidiaries have not been referred to the Board for Industrial

and Financial Reconstruction within a period of five years prior to the date of application for

listing.

• No regulatory action has been taken against the company, its promoter or director, by the Board,

Reserve Bank of India, Insurance Regulatory and Development Authority or Ministry of

Corporate Affairs within a period of five years prior to the date of application for listing.

Financial Criteria:

• The paid up capital of the company has not exceeded 25 crore rupees in any of the previous

financial years.

• The company has at least one full year’s audited financial statements, for the immediately

preceding financial year at the time of making listing application.

• The company has not completed a period of more than 10 years after incorporation and its

revenues have not exceeded 100 crore rupees in any of the previous financial years

• At least one of the following criteria:

1. At least one alternative investment fund, venture capital fund or other category of

investors/lenders approved by the Board has invested a minimum amount of 50 lakh

rupees in equity shares of the company.

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2. At least one angel investor who is a member of an association/group of angel investors

which fulfils the criteria laid down by the recognized stock exchange, has invested a

minimum amount of 50 lakh rupees in the equity shares of the company through such

association/group.

3. The company has received finance from a scheduled bank for its project financing or

working capital requirements and a period of 3 years has elapsed from the date of such

financing and the funds so received have been fully utilized.

4. A registered merchant banker has exercised due diligence and has invested not less than

50 lakh rupees in equity shares of the company which shall be locked in for a period of

three years from the date of listing.

5. A qualified institutional buyer has invested not less than 50 lakh rupees in the equity

shares of the company which shall be locked in for a period of three years from the date

of listing.

6. A specialized international multilateral agency or domestic agency or a public financial

institution as defined under section 4 A of the Companies Act, 1956 has invested in the

equity capital of the company.

As Far as on date no company is listed on ITP of BSE SME and NSE Emerge but information

Memorandum of 2 Companies is filed. Jaisukh Dealers limited and Gracious Software limited of Kolkata.

Hopefully in this year listing on ITP is going to happen