i. Primary Securities Market

Simplification and streamlining of issue procedure

The SEBI has exempted infrastructure companies and municipal corporations from the requirements of Rule 19(2)(b) of Securities Contracts (Regulation) Rules, 1957, allowing them to list their debt instruments on the stock exchanges without the pre-existing requirement of equity being listed first. These companies can come out with a public offer and list their NCDs/PCDs subject to the condition that such instruments carry an investment grade rating and are fully secured irrespective of their maturity. In case of FCDs/PCDs, the equity issued prior to the issue of debt could be listed only at the time when the equity arising on conversion of such convertible instruments gets listed. This has been done so as to facilitate fund raising by infrastructure companies which have long gestation periods and entities like municipal corporations which can only raise funds through debt instruments.
The existing SEBI Guidelines restricted the facility of book-building to 75 per cent of the issue size. However, this constrained the benefits arising out of demand and price discovery. The facility of making an issue through book building has now been extended to entire issue size and shall be available to issuer companies which propose to make an issue of capital of and above Rs. 100 crore.
Amendments to SEBI (Merchant Bankers) Regulations, 1992 were made. Only body corporates were allowed to function as merchant bankers.
Multiple categories of merchant bankers viz. Category II,III and IV was abolished and henceforth there will be only one category of merchant bankers. The merchant banker would now be required to seek separate registration if they wish to act as underwriter or portfolio manager.
Also, merchant bankers were prohibited from carrying on fund-based activities other than those related exclusively to the capital market. In effect, the activities undertaken by NBFCs such as accepting deposits, leasing, bill discounting etc. would not be allowed to be undertaken by a merchant banker.
The SEBI (Registrars to an Issue and Share Transfer Agents) Regulations 1993 were amended to provide for an arms length relationship between the issuer and the Registrar to the Issue. It has been stipulated that no registrar can act as registrar to any issue of securities made by any body corporate, if the Registrar to the Issue and the Issuer are associates.
In order to monitor the movement of employees of merchant bankers category I, the SEBI directed all category I merchant bankers to submit specified information on their employees engaged in merchant banking activity. Thus a database of persons engaged in merchant banking industry has been created by the SEBI.
In November 1997, the Central Government decided that entities which issue instruments such as agro bonds, plantation bonds etc. and the schemes through which such instruments are issued would be treated as collective investment schemes coming under the provisions of the SEBI Act, 1992 and would be regulated by the SEBI. In order to draft the Regulations, a committee was appointed by the SEBI under the Chairmanship of Dr S.A. Dave. Until the Regulations were notified, the provisions of Section 12(1)(B) of the SEBI Act prohibited any new scheme to be sponsored or further fund to be raised. Meanwhile the SEBI also stipulated that all existing schemes could mobilise funds only through the existing schemes after obtaining a rating from any of the recognised credit rating agencies. The SEBI also imposed the condition that all advertisements issued by the collective investment schemes should adhere to the advertisement code prescribed by the SEBI.

Collective investment schemes

The Government of India vide its press release dated November 18, 1997 directed that entities which issue instruments like agro bonds, plantation bonds etc. would come under the regulatory purview of Securities and Exchange Board of India. Such entities were to be treated as "Collective Investment Schemes" coming under the provisions of Sec.11(2)c of the SEBI Act.
Accordingly, SEBI vide its press release dated November 23, 1997 directed under the provisions of Sec. 11B read with Proviso to Section 12(1)(B) of the SEBI Act prohibiting the entities from launching any fresh schemes till such time as the Regulations for collective investment schemes are notified.
Under the proviso to section 12(1)B, the existing schemes were allowed to continue subject to their submitting the information about their schemes with offices of SEBI and complying with code of advertisement as prescribed in the SEBI guidelines on Disclosure and Investor Protection. A public notice was issued in all the leading national and regional newspapers and existing entities were directed to file the details of their schemes with SEBI by January 15, 1998.
In order to frame the regulations for collective investment schemes, a committee was appointed by the SEBI under the Chairmanship of Dr. S.A. Dave.
The committee in its interim recommendation recommended that existing collective investment schemes should be allowed to mobilise further funds only if they obtain a rating from any of the recognised Credit Rating Agencies. Accordingly, after taking into consideration the views of the members of the Dave committee as well as the interest of the investors, The SEBI, in exercise of the powers under Sec. 11B read with the proviso to Section 12(1)B of the SEBI Act, 1992 directed that no existing scheme shall mobilise any money from the public or from the investors under the existing schemes unless the instruments of such schemes carry a rating from any of the recognised credit rating agencies.
The members are deliberating on various aspects of regulations of these schemes including the structure, the scheme details, the disclosure norms, arrangement of trusteeship, fate of existing schemes etc.
In response to the Public notice issued by the SEBI, 478 entities who were mobilising funds under collective investment schemes filed the details of their schemes with SEBI till March 31, 1998. As gathered from the documents filed with the SEBI, the total amount mobilised by these schemes works out to approximately Rs. 2,500 crore.