Anchor Investor

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ANCHOR INVESTOR New Delhi: Market regulator Securities and Exchange Board of India (Sebi) has made it mandatory to have atleast two anchor investors for an issue size up to Rs 250 crore and five investors for an issue size exceeding Rs 250 crore. Further mutual funds will be allowed to subscribe to up to one third of the portion reserved for anchor investor. The decision to allow an anchor investor in a public issue was taken by the market regulator in its last board meeting held on June 18, 2009 as a measure directed to revive and boost confidence among the investors in the primary market. According to it, out of the portion available for allocation to Qualified Institutional Buyers (QIB) in a public issue, up to 30% will be allocated to anchor investo with a lock-in period of 30 days. Sebi has made necessary changes to Sebi (DIP) guidelines to implement the new norms. A. circular issued by the regulator on Thursday said, “ Allocation to anchor investors shall be on a discretionary basis subject to minimum number of two investors for allocation up to Rs 250 crore and five investors for allocation of more than Rs 250 crore”. “Allowing more than one anchor investor will reduce the possibility of any single investor acting in league with the promoter group to make the issue get subscribed,”, said Prithvi Haldea – member of Sebi’s Primary Market Advisory Committee (PMAC). Further Sebi amendment to its DIP guidelines also makes it compulsory for listing an IPO on atleast one stock exchange with nation wide trading terminals. These amended guidelines shall be applicable where draft offer documents for public issues are filed with Sebi on or after the date of this circular and incase where Sebi has not yet issued its observation on draft red herring prospectus already filed with the regulator. The new guidelines state that an unlisted company making an IPO shall list the securities being issued through the IPO on atleast one stock exchange having nationwide trading terminals. “Such listing provides an active trading platform to investors from all across the country in securities of the company,” said Sebi. Moreover, the number of shares allocated to anchor investors and the price at which the allocation is made shall be made available in the public domain by the merchant banker before opening of the issue....

Mutual Fundas
New SEBI Guidelines for Mutual Funds

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The Securities and Exchange Board of India (SEBI) has brought in sweeping changes for the mutual fund industry. The impact of which will be felt on the investor in more ways than one. 1) First, for New Fund Offers (NFOs): They will only be open for 15 days. (ELSS funds though will continue to stay open for up to 90 days) It will save investors from a prolonged NFO period and being harangued by advisors and advertisements. The motivation behind the rule seems to be simple – if you can invest anytime, why keep NFO period long?

2) NFOs can only be invested at the close of the NFO period. Earlier, Mutual funds would keep an NFO open for 30 days, and the minute they received their first cheque, the money would be directly invested in the market; creating a skewed accounting for those that entered later since they get a fixed NFO price. The market regulator has corrected this by extending Application Supported by Blocked Amount (ASBA) to mutual funds. This will become effective starting July 1st this year. By the ASBA process (Application Supported by Blocked Amount) one can continue to earn interest in the bank account until the NFO closes (remember there is usually no rejection or “oversubscription” in a mutual fund NFO) which means that the cheque goes for clearing after the NFO has closed irrespective of when it was sent. The fund manager will be able to invest once the NFO closes. 3) Dividends can now only be paid out of actually realized gains. Impact: it will reduce both the quantum of dividends announced, and the measures used by MFs to garner investor money using dividend as a carrot to entice new investors. 4) Equity Mutual funds have been asked to play a more active role in corporate governance of the companies they invest in. This will help mutual funds become more active and not just that, they must reveal, in their annual reports from next year, what they did in each “vote”. SEBI has now made it mandatory for funds to disclose whether they voted for or against moves (suggested by companies in which they have invested) such as mergers, demergers, corporate governance issues, appointment and removal of directors. MFs have to disclose it on their website as well as annual reports. 5) Equity Funds were allowed to charge 1% more as management fees if the funds were “no-load”; but since SEBI has banned entry loads, this extra 1% has also been removed. 6) SEBI has also asked Mutual Funds to reveal all commission paid to it’s sponsor or associate companies, employees and their relatives. 7) Regarding the Fund-of-Fund (FOF) – The market regulator has stated that information documents that Asset Management Companies (AMCs) have been entering into revenue sharing arrangements with offshore funds in respect of investments made on behalf of Fund of Fund schemes create conflict of interest. Henceforth, AMCs shall not enter into any revenue sharing arrangement with the underlying funds in any manner and shall not receive any revenue by whatever means/head from the underlying fund. These guidelines set by the SEBI will lead to greater transparency for the common investor. SEBI formulates policies and regulates the mutual funds to protect the interest of the investors. With these guidelines falling in place it would create better trust and transparency and an investable environment that would attract investors with greater faith and confidence. A welcome & refreshing move!

Home » Initial Public Offer (IPO) New IPO guidelines of SEBI

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SEBI had issued new guidelines for new IPOs. The new guidelines of Applications Supported by Blocked Amount (ASBA) allows investors to apply for an IPO, keeping the application money in their bank accounts till the finalisation of the allotment. 20 Microns Ltd is set to become the first company to come out with an initial public offer (IPO) through the new Securities and Exchange Board of India (SEBI) guidelines of Applications Supported by Blocked Amount (ASBA). "We are offering 20 Microns Ltd's IPO under the new Sebi guidelines through applications supported by blocked amount' (ASBA). The investors will have to fill up an application form with their name, PAN number and DPID details to any of the five designated banks--State Bank of India (SBI), HDFC Bank, ICICI Bank, Corporation Bank and Union Bank--to block the application money in a bank account," Keynote Corporate Services' vice-chairman, B Madhuprasad, told PTI here today. The new system will help retail investors whose IPO application money is often blocked for weeks even when they are not allotted shares, Madhuprasad said. The investors would benefit because they won't have to pay anything upfront. So the cash won't be required to be paid immediately. Of course, the funds would be blocked with the bank. The time and costs involved in waiting to get the refunds and then crediting them to the account would be eliminated altogether. This process will also do away with the IPO refund process. This will also shorten the time between a public issue and its listing, since listing happens only after refunds are done.

Guidelines for Underwriting FPO Finding out about the planned FPO - Typically, a company interested in going publicsubsequently will contact financial institutions about underwriting its FPO. Institutionmay want to establish relationships with the local businesses so that they will need anunderwriter. Negotiating the details with the company – Underwriter has to find out as much as possible about this company both financially and personally and need to know howmany shares the FPO will consist of, the price per share and the type of FPO, as wellas the views of the company's owners. Devising a financial strategy to sell the shares I f t h e i s s u i n g i n s t i t u t i o n h a s confidence in its ability to sell the shares, underwriter may want to purchase themupfront from the company. In this case, they will buy the shares at a discount andresell them at a higher price to make a profit.

Considering other options for selling the shares - Underwriter can also auction off shares, commit to sell a certain number without paying upfront or commit to do your best to sell shares without making any specific commitment. Getting copies of the company prospectus - This legal document provides an outline of both the company and the FPO shares plan. Underwriter need to provide a copy of thisdocument to all potential shareholders so they can learn more about the company andthe responsibilities of shareholders. Calling the clients with large account balances within the institution Underwritersgenerally offer FPO's to their preferred investors, since an investor with more moneycan buy a larger percentage of FPO shares if interested. Keeping in touch with the company - The Company should know how the sale of FPOshares is going based on internal record keeping, but underwriter should also maintainan independent system of checks and balances. If the underwrite sales goes poorly, thecompany may cancel the FPO campaign

FII
Mumbai: India’s capital market regulator is likely to revisit regulations for foreign institutional investors (FIIs) over concerns that stringent rules may lead to an exodus of overseas investors, the key drivers of domestic stocks. In an attempt to enhance transparency, lower liquidity risks and reduce the volatility of fund flows from FIIs, the Securities and Exchange Board of India (Sebi) had asked the foreign funds to have at least one so-called broad-based sub-account for retaining their licences. The regulator had given them a year, or until January 2012, to comply with the norms. India’s bellwether equity index, the Sensex, touched its lifetime high of 21,005 in November and has since then lost at least 21%, technically making India a bear market, amid the debt crisis in Europe and the US downgrade. The rules may need to be revised to avoid discouraging them in the current market conditions, said a person familiar with the development. According to him, all options are open. “One needs to see whether the new norms can be deferred or even revised,” said the person on condition of anonymity as no formal decision has been taken. Broad-based sub-accounts of FIIs are typically those of large overseas wealth funds and have a wide investor base.

A sub-account under an FII is classified as broad-based when it has at least 20 investors, with none holding more than 49% of the funds. Typically, funds under broad-based accounts are long-term in nature. Currently, a significant part of trading takes place through proprietary sub-accounts, which have a smaller investor base, with a single or a small group of rich individuals holding a majority. Proprietary sub-accounts are shown as the FIIs’ own. The transparency of broad-based sub-accounts is much higher than that of proprietary sub-accounts, negating the possibility that the money being invested is that which went out of India illegally, and ensuring that its source is a bona fide overseas investor. Sebi’s interpretation is that since an FII has been registered as an investment manager, it should be managing clients’ money, not just its own. There are 1,736 registered FIIs and 5,958 registered sub-accounts in India. The number of FIIs has come down by five since last November when they were asked to comply with the new rules. This is in sharp contrast to a net addition of 36 FIIs in calendar year 2010, 124 additions in 2009 and 408 in 2008. Currently, nearly 40% of FII sub-accounts are proprietary accounts. In addition, 30% of FIIs that are investment managers operate only through proprietary accounts. They are not willing to comply with Sebi’s new guidelines. In fact, a few hundred of these FIIs and close to 40% of the sub-accounts are set to exit India with the new rules coming into effect. FIIs say no new registrations are being made. As the deadline to comply with the new rules approaches, many foreign entities have also not sought renewal of their registration. “Providing a very small window of one year is asking for a bit too much, given the weak domestic and international market conditions,” said Tejesh Chitlangi, senior associate at Finsec Law Advisors. “Even large FIIs are facing a practical hardship in creating a broad-based sub-account within such a small span of time. There is a lack of interest in seeking new registrations given such requirements.” Licences for FIIs and their sub-accounts are valid for three years, but they need to renew these at least three months prior to expiry. If Sebi revisits the rules, it wont be the first time it is changing norms governing FIIs. In 2008, the regulator lifted the ban on so-called participatory notes (P-notes) to shore up slumping domestic markets. P-notes are contracts issued by FIIs, registered in India, to their offshore clients. Such P-notes enable the overseas investors to buy Indian equities through the FII. It has also selectively waived the investment norms for Singapore investors in Indian firms. Under the norms, no FII can hold more than 10% stake in any Indian company. If a promoter has backed more than one FII, this ceiling is applicable at the promoter level (and not the FII level). Sebi recently waived the norm for investors from Singapore with which India has an agreement for opening up the trade and financial sector. The new rules “may compel many of the genuine FIIs and, in turn, their proprietary sub-accounts to give away their registration and either stop investing in India or come via the (P-notes) route, both of which Sebi and the markets may not want”, said Chitlangi of Finsec Law Advisors. While global markets have slumped over worldwide uncertainty, experts rule out a repeat of 2008 as there is no liquidity crisis in sight. Nonetheless, an exodus of FIIs will dent sentiment and reverse foreign capital flows.

In late 1990s, a few years after India opened its capital markets for foreign investments, FIIs were allowed to have proprietary accounts and that is when firms and individuals started coming in. Later, the rules were tightened and only FIIs with broad-based sub-accounts were given licences. “But around 2004-05, Sebi again started clearing applications with non-broad-based sub-accounts. Now, again, they want broad-based accounts,” said a person familiar with the Sebi circular. As investors migrate to safer assets over concerns of prolonged turbulence, FIIs have been selling equities heavily across emerging markets, including India. They sold Indian stocks worth $1.67 billion (around Rs7,630 crore today) in August so far. Since January, net equity investments by FIIs have fallen to $326.9 million from $29.36 billion in 2010

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