Listing of Securities
The objectives of listing are to:
- Provide liquidity to shares
- Mobilize savings for economic development
- Protect interest of investors by ensuring full disclosures
Most stock exchanges have a listing department to grant approval for listing of shares of companies in accordance with the various provisions of the law.
A company intending to have its share listed has to comply with the listing requirements prescribed by the exchange. Companies that have been classified as large cap companies have slightly different rules from those classified as small cap. Some of the common requirements are explained below.
Different minimum post-issue paid-up capital and the minimum issue size can be prescribed for large and small cap companies. The same is the case with minimum income, turnover and number of shareholders post-issue.
Most exchanges insist on a due diligence study conducted by an independent team of Chartered Accountants or Merchant Bankers appointed by the exchange.
A company intending to have its share listed has to comply with the listing requirements prescribed by the exchange. Companies that have been classified as large cap companies have slightly different rules from those classified as small cap. Some of the common requirements are explained below.
Different minimum post-issue paid-up capital and the minimum issue size can be prescribed for large and small cap companies. The same is the case with minimum income, turnover and number of shareholders post-issue.
Most exchanges insist on a due diligence study conducted by an independent team of Chartered Accountants or Merchant Bankers appointed by the exchange.
The applicant, promoters and/or group companies, should be in compliance of the listing agreement.
Most exchanges follow a set procedure for companies that wish to offer their scrips through public issues. The companies are required to obtain the exchange's prior permission to use its name in the prospectus or offer for sale documents before filing the same with the concerned office of the Registrar of Companies.
Submission of Letter of Application
As per Section 73 of the Companies Act, 1956, a company seeking listing of its scrips on an exchange is required to submit a letter of application to all the stock exchanges where it proposes to have its shares listed before filing the prospectus with the Registrar of Companies.
Allotment of Securities
Most exchanges stipulate that a company complete allotment of scrips offered to the public within 30 days of the date of closure of the subscription list and approach the regional stock exchange, that is the stock exchange nearest its registered office, for approval of the basis of allotment. In case of a book building issue, allotments are normally insisted upon not later than 15 days from the closure of the issue.
Trading Permission
As per Securities and Exchange Board of India Guidelines, the issuer company should complete the formalities for trading at all the stock exchanges where the securities are to be listed within 7 working days of finalisation of basis of allotment.
A company should scrupulously adhere to the time limit for allotment of all securities and dispatch of allotment letters/share certificates and refund orders and for obtaining the listing permissions of all the exchanges whose names are stated in its prospectus or offer documents. In the event of listing permission to a company being denied by any stock exchange where it had applied for listing of its securities, it cannot proceed with the allotment of shares. However, the company may file an appeal before the Securities and Exchange Board of India under Section 22 of the Securities Contracts (Regulation) Act, 1956.
Requirement of 1 per cent Security
The companies making public issues are generally required to deposit 1 per cent of the issue amount with the regional stock exchange before the issue opens. This amount is liable to be forfeited in the event of the company not resolving the complaints of investors regarding delay in sending refund orders/share certificates, non-payment of commission to underwriters, brokers and so on.
Payment of Listing Fees
Most exchanges require that all listed companies pay an annual listing fee.
Compliance with Listing Agreement
The companies wanting to get their shares listed are normally required to enter into an agreement with the exchange called the Listing Agreement. This agreement is of great importance and is executed under the common seal of a company. Under the Listing Agreement, a company could undertake, among other things, to provide facilities for prompt transfer, registration, sub-division and consolidation of securities; to give proper notice of closure of transfer books and record dates, to forward copies of unabridged annual reports and balance sheets to the shareholders, to file distribution schedule with the exchange annually; to furnish financial results on a quarterly basis; intimate promptly to the exchange the happenings which are likely to materially affect the financial performance of the company and its stock prices, to comply with the conditions of corporate governance and so on.
