New Delhi, Sept. 23 -- The Securities and Exchange Board of India (SEBI) is planning a comprehensive overhaul of its merchant banking regulations and Issue of Capital and Disclosure Requirements (ICDR) framework and will float consultation papers on these over the next few months.
"The merchandising regulations are due for review. Six months is what we have given ourselves to see how the regulation works out, and we will put out a consultation paper in... [a] short period," said Jeevan Sonparote, executive director at SEBI speaking at an industry event hosted by the Association of Investment Bankers of India (AIBI).
The move aims to streamline the primary market process, eliminate redundant compliance burdens and enhance regulatory clarity for intermediaries, he said.
Sonparote added that the focus was on ensuring that valuations of an IPO issue are not the only factors driving merchant banking business.
"The focus there is that the merchant banking regulations should remain true to business, and that issues like valuations solely should not find a place in the merchant banking business. So that is something that's very clear. We need to have a regulation which represents the business that we are doing," he said.
In December last year, SEBI had mandated the IPO-bound companies issue a easy-to-understand abridged form of the draft red herring prospectus (DRHP), in addition to filing the abridged form of the RHP. It also approved amendments to ICDR Regulations that enabled the locking in of pledged shares of promoters through a depository mechanism, to make listing of companies easier.
In a consultation paper floated in June, SEBI had proposed a harmonised framework for determining the base price for pre-open call auctions and the price band mechanism for securities listed on multiple stock exchanges.
To further streamline the IPO processes, Sonparote said, SEBI was mulling revisiting regulations around the print and billboard ads of issuer companies.
"It is time now to revisit that particular procedure (lengthy newspaper ads), including product billboards, huge billboards with a QR code, but nothing is visible. So I think there is a need to revisit this particular thing," he said.
SME-listing focus
The regulator expressed particular focus on the small and medium Enterprises (SME) IPO segment, where merchant bankers are expected to provide extended guidance to newly listed companies. SEBI expects merchant bankers to handhold SME issuers not just during the IPO process, but for at least two to three years post-listing to ensure seamless corporate governance and legal compliance.
He said the regulator was working on a number of outreach programs along with the Association of Investment Bankers of India (AIBI).
Sonparote cited plans of engaging with SME bankers and SME investment bankers in a quarterly or six monthly workshop to ease out expectations and gaps on both sides. Furthermore, SEBI and AIBI are finalising a project to establish performance indicators for merchant bankers, which is expected to be rolled out within the next month, he said.
'Merchant banker as gatekeeper'
Sonparote strongly advocated for compliance by companies as recommended by merchant bankers.
"We believe the merchant banker is a gatekeeper as far as compliance with law is concerned. We expect the merchant banker to ensure that the company understands the law," he said.
Sonparote also emphasised on the need to strengthen the central repository system that was introduced by SEBI in December 2024.
"So this repository system needs to be strengthened, and I think the AIBI should take up this responsibility and ensure that its members utilise the repository system not only as a tick box but as a compliance handbook kind of a situation where all the documents related to that particular IPO were filed," he said.
The repository requires merchant bankers to electronically upload and store due diligence records for public issues on a centralised online platform managed by stock exchanges.
Published by HT Digital Content Services with permission from VC Circle.