Listing of Securities

A company has to list its securities on the exchange so that they are available for trading. A company can seek listing on more than one stock exchange but it is compulsory to list on the regional stock exchange nearest to its registered office. A security listed on one exchange is permitted for trading on the other. There were 9,922 securities listed on exchanges at the end of March 2001.

A company can seek listing if at least 10 per cent of the securities, subject to a minimum of 20 lakh securities, have been offered to public for subscription. In addition the size of the net offer to the public (that is, the offer price multiplied by the number of securities offered to the public excluding reservations, firm allotment, and promoters’ contribution) is not less than Rs 100 crore and the issue is made only through book building method with 60 per cent of the issue size allocated to the qualified institutional buyers (QIB). Alternatively a company has to offer at least 25 per cent of the securities to the general public.

The basic norms for listing of securities are uniform for all exchanges. They are specified in the listing agreement entered into between the company and the concerned exchange and their compliance is monitored by the exchanges. The stock exchanges levy annual listing fees form the listed companies this constitutes their major source of income.

After a security is issued to the public and listed on a stock exchange, the issuing company has to make continuous disclosures relating to financial results, material information which would have a bearing on the performance of the company, and information in the form of a statement on the actual utilization of funds and actual profitability as against the projected utilization of funds and projected profitability on a quarterly basis to the stock exchanges. To improve transparency, SEBI made it mandatory for listed companies to provide their half yearly results on the basis of a limited review by its auditors or chartered accountants to the stock exchanges.

Central Listing Authority:

The listing fees constitute the major source of income of stock exchanges. The greater the number of companies listed on an exchange the higher their listing fees. To attract companies to get listed, exchanges are tempted to ease listing standards. Moreover listing requirements vary from one exchange to another. This results in issuers wasting resources to comply with listing requirements of a number of exchanges simultaneously. Hence, a conflict of interest arises when stock exchanges regulate the companies that contribute to their revenues through listing fees. This conflict may become more serious in the near future as the process of demutualization of stock exchanges is underway. With demutualization, the core objective of stock exchanges would be profit maximization; this would lead to further dilution in listing requirements to maintain or increase listing fees.

To resolve these issues, a central listing authority is needed in the country who would not only frame listing regulations but also take on the task of ensuring compliance of listing requirements. In the UK, the London Stock Exchange (LSE) takes care of trading wile a listing authority takes care of the listing activity. The government has proposed the introduction of a Central Listing Authority (CLA). The CLA would regulate prelisting procedures including clearing of prospectus. It would also apply post lighting measures to monitor the purpose for which funds are used. This would prevent diversion of funds for alternate use. In the pre-liberalization era, the controller of Capital Issues (CCI) monitored the pricing of issues as well as the end use of funds by companies.

Under the proposed structure, the regional listing of shares will continue and the stock exchange would be responsible for monitoring violations of listing agreement. Merchant bankers would be responsible for disclosures made in the prospectus. The department of company affairs would, as usual, regulate unlisted companies.

To make corporates more accountable for their actions and to prevent any further scandals, SEBI is also contemplating the creation of a central listing authority. It has already set up an internal committee to spell out the norms for the CLA.