The Securities and Exchange Board of India (SEBI) vide its press release dated 30th November 2015 has relaxed the delisting norms for small companies. The norms aimed at protecting the interests of investors in securities and to promote the development of and to regulate the securities market simplifies the procedure of small companies whose securities have been infrequently traded in the last one year. It would help in clearing out the increasing illiquid stocks from the market and improve market efficiency.

DELISTING

Delisting refers to the removal of a listed security from the exchange on which it trades. Delisting curbs the securities of the delisted company from being traded on the stock exchange. Stock is removed from an exchange because the company for which the stock is issued:

Voluntarily gets itself removed from the stock exchange by making an application to the stock exchange; or Is Involuntarily removed for not being in compliance with the listing agreements

PRIOR LAW

Delisting Regulations provide for simplified procedure of delisting for small companies and exempt them from the requirements of Chapter IV of the Delisting Regulations subject to certain conditions Where a company has paid up capital upto one crore rupee and its equity shares were not traded in any recognized stock exchange in the one year immediately preceding the date of decision, such equity shares may be delisted from all the recognized stock exchanges where they are listed, without following the procedure in Chapter IV.

CHANGED LAW

SEBI has approved the proposal received from investor association that condition of no trading for preceding one year may be relaxed and the small companies, whose trading of equity shares during the twelve calendar months is less than 10% of the total number of shares of such company, would also be eligible for simplified procedure of delisting.

There are a large number of companies that are defunct or are not being traded or have fall under the infrequently traded category. In case of such companies it is beneficial for them to be delisted and the company can pay off their shareholders on the basis of certain criterion like return on net worth, EPS etc, which may be much lesser than the intrinsic value of the share. Although the shareholder may receive a lesser amount than the actual worth of the security, he can still get his blocked funds released and invest them in other liquid securities.

EXIT PRICE

Keeping the interest of the investors paramount, the Board has stated that the exit price shall not be less than the floor price determined for the purpose of Reverse Book Building for not frequently traded securities in terms of Delisting Regulations read with SEBI Takeover Regulations.

CONCLUSION

There is an unending debate on the advantages and disadvantages of delisting. The obvious disadvantage is reduction in the lack of issuers. It also impacts the investors who had invested in the company on the basis of the promise that the securities would be listed on a stock exchange. On the delisting of securities, his shares would no longer be marketable and he would be forced to accept whatever price is available which would be much lesser than the actual value.

But one aspect accepted by all is that in case of companies whose shares are illiquid or infrequently traded, the best solution is to get the company delisted so that the investor can be relieved of the burden of carrying dead stock. The primary objective of listing of securities is to improve their liquidity. The lack of required liquidity makes the securities unattractive thereby defeating the purpose of listing itself.

Therefore, delisting is effective solution as it washes out the market from companies with low liquidity. Although the market is left with fewer issuers dealing in large trade volumes, the liquidity in the market is ensured and the investors of the delisting companies are ensured of a price as close to the market price by ensuring compliance with the delisting regulations.

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