Govt Likely To Let Overseas Funds Purchase
Shares From Primary Shareholders
Shaji Vikraman & Ashish Rukhaiyar
MUMBAI
Oct 23, 2008
THE government is considering a proposal to allow foreign portfolio investors to buy into the equity of stock exchanges. The proposal now being vetted envisages foreign portfolio investors, or FIIs, being allowed to buy a stake in any of the stock exchanges from one of the existing shareholders through a secondary market transaction.
Earlier, at the time of framing the rules for foreign investment, the government and financial regulators had said an FII could pick up stakes in stock exchanges only through secondary market purchases. This was interpreted as permission to buy shares only after the listing of bourses. However, a sale by a primary shareholder to another investor could be construed as a secondary market purchase and not just listing and therefore, the government is set to allow such transactions, said a person familiar with the issue.
India allows foreign investment up to 49% in stock exchanges, depositories and clearing corporations with foreign direct investment of 26% and 23% in the form of foreign portfolio investment. After the rules were notified, many stakeholders made out a case to the government to revise it, saying investors needed more flexibility and comfort.
People familiar with the development say representatives of various stakeholders met with regulatory authorities, seeking more clarity on the issue. Apart from foreign stock exchanges, promoters and top officials of industrial houses, such as Bajaj and Aditya Birla have bought stakes in their personal capacity in the two Indian premier stock exchanges — NSE and BSE.
The proposed move to allow secondary market purchases by FIIs could provide stakeholders an exit option. “This is one of the core issues, especially for foreign shareholders,” says Majmudar & Co managing partner Akil Hirani. “The understanding that we had was that existing shareholders can sell their shares only in the secondary market. And with listing of Indian exchanges nowhere in sight, it was proving to be a major impediment,” he said.
Singapore Exchange (SGX), Deustche Borse and New York Stock Exchange (NYSE) are the three foreign stock exchanges, which hold equity stakes in Indian bourses. Morgan Stanley, Goldman Sachs, Merrill Lynch and Actis are some of the other global majors who bought shares of Indian stock exchanges in 2006.
For many, this was one of the two core issues that was acting as a roadblock in enhancing valuations of Indian bourses. Sebi has already addressed the other issue of a maximum limit for certain categories of shareholders. The limit has been hiked, including for foreign exchanges from the earlier 5% to 15%.
Wednesday, 31 December 2008
Queue gets longer for currency futures play
Seven Banks Ally With Chicago Mercantile To Float An Exchange
Reena Zachariah & Ashish Rukhaiyar
MUMBAI
Oct 22, 2008
THE slow and steady rise in the volume of currency derivatives trading in India seems to be attracting more players into this segment. Seven Indian banks have joined hands with the Chicago Mercantile Exchange (CME), the world’s largest diversified financial derivatives exchange, to form a consortium for launching the fourth Indian exchange offering a platform for currency futures.
The clutch of banks including Federal Bank, Canara Bank, Bank of India, Bank of Baroda, Oriental Bank of Commerce, Indian Bank and Andhra Bank have floated a company called the United Stock Exchange that has applied for a licence with the capital market regulator. Banking sources said the group was in talks with more banks to subscribe to the capital of the company.
“We have already met with Sebi officials and the process is on track. We are also in talks with more stateowned and private banks, asking them to join our group,” said a senior banker, who is also a part of the consortium.
A currency future is a derivative contract to exchange one currency for another at a specified date in future. The price at which the transaction is to be settled is the exchange rate prevailing on the last trading date. Typically, one of the currencies involved in the transaction is the US dollar. In India, however, it has so far been an over-the-counter (OTC) market with banks offering these derivative products to companies. The increasing interest by several players to offer exchange-traded currency futures underscores the huge potential in the segment.
Interestingly, the Bangalore Stock Exchange, also wants to be allowed to trade currency futures, according to people familiar with the development. The regional stock exchange, which sees very low volumes of trading, has also initiated talks with banks with this regard.
Banks are the major players in the currency futures market and so most groups are trying to woo them. A senior official of the Bangalore Stock Exchange confirmed the development while refusing to share further details. Representatives of both the consortia have already met with Sebi officials.
Sebi officials confirmed that representatives of the two consortia have met them and approval would be given if they fulfil the eligibility criteria. Sebi has been articulate about the fact that they would encourage more competition, and would approve any entity that would approach them, if they fulfil the stated criteria.
The RBI-Sebi joint committee that was formed to frame guidelines for currency derivatives laid down two key criteria for exchanges willing to launch currency futures — a nationwide presence and a balance sheet networth of at least Rs 100 crore. The guidelines also require entities to have robust surveillance systems to monitor positions, prices and volumes on a real time basis.
Currently, the National Stock Exchange (NSE), Bombay Stock Exchange (BSE) and MCX are the three entities that offer a platform to trade currency derivatives. NSE was the first Indian exchange to offer this platform, doing so in August. According to industry players, Ahmedabad-based National Multi Commodity Exchange (NMCE) is also planning to launch the currency futures segment.
Reena Zachariah & Ashish Rukhaiyar
MUMBAI
Oct 22, 2008
THE slow and steady rise in the volume of currency derivatives trading in India seems to be attracting more players into this segment. Seven Indian banks have joined hands with the Chicago Mercantile Exchange (CME), the world’s largest diversified financial derivatives exchange, to form a consortium for launching the fourth Indian exchange offering a platform for currency futures.
The clutch of banks including Federal Bank, Canara Bank, Bank of India, Bank of Baroda, Oriental Bank of Commerce, Indian Bank and Andhra Bank have floated a company called the United Stock Exchange that has applied for a licence with the capital market regulator. Banking sources said the group was in talks with more banks to subscribe to the capital of the company.
“We have already met with Sebi officials and the process is on track. We are also in talks with more stateowned and private banks, asking them to join our group,” said a senior banker, who is also a part of the consortium.
A currency future is a derivative contract to exchange one currency for another at a specified date in future. The price at which the transaction is to be settled is the exchange rate prevailing on the last trading date. Typically, one of the currencies involved in the transaction is the US dollar. In India, however, it has so far been an over-the-counter (OTC) market with banks offering these derivative products to companies. The increasing interest by several players to offer exchange-traded currency futures underscores the huge potential in the segment.
Interestingly, the Bangalore Stock Exchange, also wants to be allowed to trade currency futures, according to people familiar with the development. The regional stock exchange, which sees very low volumes of trading, has also initiated talks with banks with this regard.
Banks are the major players in the currency futures market and so most groups are trying to woo them. A senior official of the Bangalore Stock Exchange confirmed the development while refusing to share further details. Representatives of both the consortia have already met with Sebi officials.
Sebi officials confirmed that representatives of the two consortia have met them and approval would be given if they fulfil the eligibility criteria. Sebi has been articulate about the fact that they would encourage more competition, and would approve any entity that would approach them, if they fulfil the stated criteria.
The RBI-Sebi joint committee that was formed to frame guidelines for currency derivatives laid down two key criteria for exchanges willing to launch currency futures — a nationwide presence and a balance sheet networth of at least Rs 100 crore. The guidelines also require entities to have robust surveillance systems to monitor positions, prices and volumes on a real time basis.
Currently, the National Stock Exchange (NSE), Bombay Stock Exchange (BSE) and MCX are the three entities that offer a platform to trade currency derivatives. NSE was the first Indian exchange to offer this platform, doing so in August. According to industry players, Ahmedabad-based National Multi Commodity Exchange (NMCE) is also planning to launch the currency futures segment.
Keep off from cos where promoters have pledged their shares
Ashish Rukhaiyar
MUMBAI
Oct 18, 2008
DEALERS staring at their trading screens on last Friday were baffled. They did not know what hit them. Benchmark indices were down over 1000 points and most stocks shed 10-15%. One particular stock, however, caught everyone’s attention.
Core Projects opened with a huge negative gap, in line with the indices. And within a few hours, the stock saw more than half of its value being eroded. Dealers were seen making frantic calls to ascertain the reason behind the massive and sudden fall. As the session progressed, various theories were attributed to the bruising decline.
According to the market talk, the promoters of Core Projects had pledged a large number of shares with some non-banking financial companies (NBFCs). As the market nosedived, the share rice of Core Projects plummeted, bringing down the value of the collateral.
In a scenario where the promoters are unable to garner additional funds, NBFCs start selling the pledged shares to recover money. This, say marketmen, starts a chain reaction, and therefore, it is best for investors to stay away from companies whose promoters are known to have pledged their shares.
The promoters of several companies pledged their shares with various NBFCs to avail of working capital. The issue of Core Projects was not a standalone case, according to marketmen. Parsvnath Developers, Shree Ashtavinayak Cine Vision, Goldstone Technologies, KS Oils, Pyramid Saimira, Sterling Biotech and Akruti City are some names that are doing the rounds in the market. These shares carry a higher risk as a major fall in their prices could trigger a selling-spree by NBFCs.
Barring Parsvnath Developers, an email sent to the other companies remained unanswered. Parsvnath Developers assistant vice president (finance) Ashok Dang, in an email reply, said, “Our promoter, Pradeep Jain had taken a loan of Rs 115 crore from a bank and NBFCs by pledging shares. The loan has been repaid to the extent of Rs 44 crore and the outstanding is now only Rs 71 crore”.
The promoters of not only midand small-cap companies, but also some large-cap companies, have been pledging shares to raise funds, say brokers. “If any share outperforms the broader market (without any fundamental support) during a bull run or underperforms when the market falls, there are chances that the promoters have pledged shares and have reasons to maintain an artificial price level,” says the head of a NBFC.
The stock, incidentally, touched a 52-week high in July, when the Sensex was down nearly 40% from its peak. Sterling Biotech gained marginal ground in the first 10 months of this calendar year. However, some real estate entities have lost considerable ground during the ongoing downturn.
The shareholding pattern of Secunderabad-based Goldstone Technologies clearly reveals that many brokerages hold shares of the company in their margin accounts. India Infoline, Sharekhan, Religare Securities, Standard Chartered Bank, IL&FS Investment Securities and Aryan Share & Stock Brokers account for more than 1% of the company’s equity.
MUMBAI
Oct 18, 2008
DEALERS staring at their trading screens on last Friday were baffled. They did not know what hit them. Benchmark indices were down over 1000 points and most stocks shed 10-15%. One particular stock, however, caught everyone’s attention.
Core Projects opened with a huge negative gap, in line with the indices. And within a few hours, the stock saw more than half of its value being eroded. Dealers were seen making frantic calls to ascertain the reason behind the massive and sudden fall. As the session progressed, various theories were attributed to the bruising decline.
According to the market talk, the promoters of Core Projects had pledged a large number of shares with some non-banking financial companies (NBFCs). As the market nosedived, the share rice of Core Projects plummeted, bringing down the value of the collateral.
In a scenario where the promoters are unable to garner additional funds, NBFCs start selling the pledged shares to recover money. This, say marketmen, starts a chain reaction, and therefore, it is best for investors to stay away from companies whose promoters are known to have pledged their shares.
The promoters of several companies pledged their shares with various NBFCs to avail of working capital. The issue of Core Projects was not a standalone case, according to marketmen. Parsvnath Developers, Shree Ashtavinayak Cine Vision, Goldstone Technologies, KS Oils, Pyramid Saimira, Sterling Biotech and Akruti City are some names that are doing the rounds in the market. These shares carry a higher risk as a major fall in their prices could trigger a selling-spree by NBFCs.
Barring Parsvnath Developers, an email sent to the other companies remained unanswered. Parsvnath Developers assistant vice president (finance) Ashok Dang, in an email reply, said, “Our promoter, Pradeep Jain had taken a loan of Rs 115 crore from a bank and NBFCs by pledging shares. The loan has been repaid to the extent of Rs 44 crore and the outstanding is now only Rs 71 crore”.
The promoters of not only midand small-cap companies, but also some large-cap companies, have been pledging shares to raise funds, say brokers. “If any share outperforms the broader market (without any fundamental support) during a bull run or underperforms when the market falls, there are chances that the promoters have pledged shares and have reasons to maintain an artificial price level,” says the head of a NBFC.
The stock, incidentally, touched a 52-week high in July, when the Sensex was down nearly 40% from its peak. Sterling Biotech gained marginal ground in the first 10 months of this calendar year. However, some real estate entities have lost considerable ground during the ongoing downturn.
The shareholding pattern of Secunderabad-based Goldstone Technologies clearly reveals that many brokerages hold shares of the company in their margin accounts. India Infoline, Sharekhan, Religare Securities, Standard Chartered Bank, IL&FS Investment Securities and Aryan Share & Stock Brokers account for more than 1% of the company’s equity.
IBM initiative helps small cos make it big in emerging markets
Ashish Rukhaiyar
DANANG, VIETNAM
Oct 15, 2008
MAI Vsan Quang started his shipping company — Asiatrans Vietnam — in 2003, a firm which is into handling logistics and port operations for many foreign and domestic shipping majors. Mr Quang, however, had a problem. His firm was just one of the many small and medium enterprises (SMEs) operating in Danang. He wanted to bring his company on the national map and needed guidance for it.
Help, luckily, was not far away. His firm’s membership with Vietnam Chamber of Commerce and Industry (VCCI) proved helpful. VCCI is the local partner of global technology major IBM that is working with various SMEs in Vietnam, giving them recommendations on efficient use of resources. “Through VCCI I got in touch with Pradeep Setlur of IBM who worked with my staff for four weeks and suggested some important changes,” said Mr Quang.
Mr Setlur is one of the many IBM volunteers who are part of the Corporate Services Corp (CSC) initiative of IBM. These volunteers are full-time IBM employees and are selected through an in-house screening process. Once trained, they are sent to different countries, mostly emerging markets, to work with local companies.
“CSC is IBM’s response to globalisation,” said IBM’s senior program manager (corporate citizenship) Kevin Thomson. With this program, IBM helps in creating leaders, he added. CSC volunteers are currently working in many emerging countries including Ghana and Philippines.
IBM, said Mr Thomson, has a very competitive online application procedure with baseline eligibility conditions. “Only the top-25% employees are eligible to apply,” he said. There were around 55,000 applications for 100 volunteer positions. While the first batch has already started work, the next batch would be out in 2009. Over the next three years, IBM intends to send 600 professionals to emerging countries.
But, how does IBM identify companies that need training? The US-based major has tied up with three global NGOs that have, in turn, joined hands with local industry bodies. These associations help IBM in zeroing in on the companies that require assistance.
In Vietnam, for instance, IBM’s global NGO partner is Australia Business Volunteers (ABV) that has tied up with VCCI which has many local SMEs as its members. Apart from Asiatrans Vietnam, mid-sized entities like Danang Software Industrial Joint Stock Company and Hai Van Company are also benefiting from CSC.
DANANG, VIETNAM
Oct 15, 2008
MAI Vsan Quang started his shipping company — Asiatrans Vietnam — in 2003, a firm which is into handling logistics and port operations for many foreign and domestic shipping majors. Mr Quang, however, had a problem. His firm was just one of the many small and medium enterprises (SMEs) operating in Danang. He wanted to bring his company on the national map and needed guidance for it.
Help, luckily, was not far away. His firm’s membership with Vietnam Chamber of Commerce and Industry (VCCI) proved helpful. VCCI is the local partner of global technology major IBM that is working with various SMEs in Vietnam, giving them recommendations on efficient use of resources. “Through VCCI I got in touch with Pradeep Setlur of IBM who worked with my staff for four weeks and suggested some important changes,” said Mr Quang.
Mr Setlur is one of the many IBM volunteers who are part of the Corporate Services Corp (CSC) initiative of IBM. These volunteers are full-time IBM employees and are selected through an in-house screening process. Once trained, they are sent to different countries, mostly emerging markets, to work with local companies.
“CSC is IBM’s response to globalisation,” said IBM’s senior program manager (corporate citizenship) Kevin Thomson. With this program, IBM helps in creating leaders, he added. CSC volunteers are currently working in many emerging countries including Ghana and Philippines.
IBM, said Mr Thomson, has a very competitive online application procedure with baseline eligibility conditions. “Only the top-25% employees are eligible to apply,” he said. There were around 55,000 applications for 100 volunteer positions. While the first batch has already started work, the next batch would be out in 2009. Over the next three years, IBM intends to send 600 professionals to emerging countries.
But, how does IBM identify companies that need training? The US-based major has tied up with three global NGOs that have, in turn, joined hands with local industry bodies. These associations help IBM in zeroing in on the companies that require assistance.
In Vietnam, for instance, IBM’s global NGO partner is Australia Business Volunteers (ABV) that has tied up with VCCI which has many local SMEs as its members. Apart from Asiatrans Vietnam, mid-sized entities like Danang Software Industrial Joint Stock Company and Hai Van Company are also benefiting from CSC.
Slump-hit arbitrageurs out of job
Ashish Rukhaiyar & Shailesh Menon
MUMBAI
Oct 09, 2008
IN WHAT may be the first signs of capital market intermediaries being forced out of business, many arbitrageurs and jobbers have either shut shop or moved on to other business segments. Some of the erstwhile 'market makers' are now trying out proprietary — trading on behalf of the firm — and client trading — punching orders on the screen for clients — to tide over the bear market. Market players said volatile market conditions and the adverse change in the securities transaction tax (STT) structure are largely to blame for this trend.
Arbitrage business typically involves near-simultaneous purchase and sale of a stock in order to profit from a difference in the price. An arbitrageur tries to spot price differences in case of stocks listed on more than one exchange. In a recent instance, Four Dimension Securities merged with Antique Stock Broking, with the merged entity now focusing on institutional broking. Four Dimension was known for its arbitrage business although it had a presence in other business segments, too.
Market participants added that the recent past has also been witness to many instances of small- and mid-sized arbitrageurs in Mumbai and Delhi shutting shop. “Jobbing and arbitraging have been wiped out of Indian market. More than market conditions, it is the additional levy (STT) that has massacred market makers,” said BR Bagri, chairman, BLB.
“The government introduced STT when the market was trading at 21,000; though equities have fallen nearly 50% from record levels, the government has done nothing to reduce transaction cost. Almost every government in Europe has reduced stamp duty — a levy similar to STT in India — payable by market makers in the respective exchanges. The lethargy on the part of authorities has resulted in several jobbing and arbitraging firms downing their shutters permanently.”
The continuous downtrend in markets has also resulted in day traders keeping away from the market. In a falling market, jobbers have to pick stocks that have upward momentum to eke small gains. Jobbers engaged in 'upla' — that is, to buy at market close and sell when the market opens the next day — have almost been wiped out, brokers said. Small-time jobbers will not trade in prevailing market conditions as they will have to maintain very high margins (30-50%) with brokers.
“Arbitrageurs bet on the direction of the market, which has become almost impossible now,” said Networth Stock Broking vice-president (sales) Deepak Mehta. “Add to it the tax issue and illiquidity, and there is hardly anything left for these entities.”
According to Mr Mehta, there are many small- and mid-sized arbitrageurs that are facing an uphill task for keeping their business running. In times of bull run — before the introduction of STT — jobbers and arbitrageurs accounted for about 45% of total trading turnover everyday. Trading volumes handled by a jobber in a single day would easily run into crores in good market condition. The margin they earned from 'buying low and selling high' would have been anywhere between Rs 2,000 and Rs 1,00,000 on an extraordinarily good day.
In the current market, the contribution of day traders would be around 15% of the total market turnover, experts said. Brokers are also finding it difficult to get day traders on profitsharing basis, they added.
“Day traders have almost become non-existent; the dip in stock future volumes says it all. A good 50% of my jobbers have not made money over the past few months,” said Crosseas Capital Services director Rajesh Baheti. "The introduction of STT is the prime reason for falling volumes in equities market. No other government in the world has imposed transaction tax on future market. In overseas bourses, market makers are given special privileges in terms of taxations with a view to boosting liquidity. India is going in the reverse direction.”
Finance minister P Chidambaram, in the Union Budget 2008-09, made an important change in the way securities transaction tax (STT) was to be treated for tax purposes, which, according to market players, impacted the business of day traders who generally operate on wafer-thin margins. According to the budget proposal, STT was to be treated as a deductible expenditure.
As per the earlier practice, STT was added to the total income and subsequently the payable tax was worked out. Under Section 88E, entities were entitled to a tax rebate and needed to pay only the surplus tax over STT at the end of the year. This benefit, however, of setting off income tax against STT is no longer available.
MUMBAI
Oct 09, 2008
IN WHAT may be the first signs of capital market intermediaries being forced out of business, many arbitrageurs and jobbers have either shut shop or moved on to other business segments. Some of the erstwhile 'market makers' are now trying out proprietary — trading on behalf of the firm — and client trading — punching orders on the screen for clients — to tide over the bear market. Market players said volatile market conditions and the adverse change in the securities transaction tax (STT) structure are largely to blame for this trend.
Arbitrage business typically involves near-simultaneous purchase and sale of a stock in order to profit from a difference in the price. An arbitrageur tries to spot price differences in case of stocks listed on more than one exchange. In a recent instance, Four Dimension Securities merged with Antique Stock Broking, with the merged entity now focusing on institutional broking. Four Dimension was known for its arbitrage business although it had a presence in other business segments, too.
Market participants added that the recent past has also been witness to many instances of small- and mid-sized arbitrageurs in Mumbai and Delhi shutting shop. “Jobbing and arbitraging have been wiped out of Indian market. More than market conditions, it is the additional levy (STT) that has massacred market makers,” said BR Bagri, chairman, BLB.
“The government introduced STT when the market was trading at 21,000; though equities have fallen nearly 50% from record levels, the government has done nothing to reduce transaction cost. Almost every government in Europe has reduced stamp duty — a levy similar to STT in India — payable by market makers in the respective exchanges. The lethargy on the part of authorities has resulted in several jobbing and arbitraging firms downing their shutters permanently.”
The continuous downtrend in markets has also resulted in day traders keeping away from the market. In a falling market, jobbers have to pick stocks that have upward momentum to eke small gains. Jobbers engaged in 'upla' — that is, to buy at market close and sell when the market opens the next day — have almost been wiped out, brokers said. Small-time jobbers will not trade in prevailing market conditions as they will have to maintain very high margins (30-50%) with brokers.
“Arbitrageurs bet on the direction of the market, which has become almost impossible now,” said Networth Stock Broking vice-president (sales) Deepak Mehta. “Add to it the tax issue and illiquidity, and there is hardly anything left for these entities.”
According to Mr Mehta, there are many small- and mid-sized arbitrageurs that are facing an uphill task for keeping their business running. In times of bull run — before the introduction of STT — jobbers and arbitrageurs accounted for about 45% of total trading turnover everyday. Trading volumes handled by a jobber in a single day would easily run into crores in good market condition. The margin they earned from 'buying low and selling high' would have been anywhere between Rs 2,000 and Rs 1,00,000 on an extraordinarily good day.
In the current market, the contribution of day traders would be around 15% of the total market turnover, experts said. Brokers are also finding it difficult to get day traders on profitsharing basis, they added.
“Day traders have almost become non-existent; the dip in stock future volumes says it all. A good 50% of my jobbers have not made money over the past few months,” said Crosseas Capital Services director Rajesh Baheti. "The introduction of STT is the prime reason for falling volumes in equities market. No other government in the world has imposed transaction tax on future market. In overseas bourses, market makers are given special privileges in terms of taxations with a view to boosting liquidity. India is going in the reverse direction.”
Finance minister P Chidambaram, in the Union Budget 2008-09, made an important change in the way securities transaction tax (STT) was to be treated for tax purposes, which, according to market players, impacted the business of day traders who generally operate on wafer-thin margins. According to the budget proposal, STT was to be treated as a deductible expenditure.
As per the earlier practice, STT was added to the total income and subsequently the payable tax was worked out. Under Section 88E, entities were entitled to a tax rebate and needed to pay only the surplus tax over STT at the end of the year. This benefit, however, of setting off income tax against STT is no longer available.
Investors could miss ASBA edge in Tata rights
Ashish Rukhaiyar & Gaurav Pai
MUMBAI
Oct 03, 2008
SEBI has extended ASBA — Application Supported by Blocked Amount — to rights issues with Tata Motors being the first company to incorporate the recently-introduced facility in its offering. Investors who apply for shares in this issue through ASBA, however, could see the money leaving their account much before allotment, which is contrary to the market regulator’s motive of introducing ASBA in the initial public offerings.
Such a scenario would arise as the rights issue guidelines clearly say the issuer can have immediate access to money if the issue has been subscribed at least 90%. And so the money would be debited from the investor’s account much before the allotment is made. The market regulator, incidentally, has extended ASBA facility to all categories of investors —institutional and retail — and so the number of applicants using this facility is expected to be high.
ASBA is part of the market regulator’s reform process for the primary market and co-exists with the current practice of IPO subscription with cheques. Earlier, the facility was available only for retail investors bidding at the cut-off price. Investors have to submit ASBA physically or electronically to the bank where his account is maintained. Banks, thereafter, block the application money till the basis of allotment is finalised or till withdrawal or rejection of the application, as the case may be.
ASBA also does away with the physical refund process, apart from reducing the time between an issue and its listing, since listing happens only after refunds are done. Market participants say the regulator could well have done some more groundwork before introducing ASBA to rights issue and also before extending it to all categories of investors.
“The Sebi circular does say the issuer can have immediate access to funds but there still exists a lot of confusion,” said a person familiar with the development. There are not many investors who are actually aware of this fact, he added. It is believed that various concerned entities, including registrars and investment bankers, met with Sebi officials to deliberate on this issue.
A Sebi official who wished not to be named said extending ASBA to the rights issue was the next logical step as the IPO market has dried up. “In case of Tata Motors, the money would be debited to the issuer’s account if the issue has been subscribed more than 90%. Excess, if any, would be credited back to the investor’s account after the allotment has been finalised,” he added. It is believed that the rights issue and ASBA guidelines would be amended in the near future to remove all such grey areas.
In effect, the real advantage of ASBA in the rights issue would be limited to the refund process, wherein money would directly be credited into the investor’s account instead of physical cheques being sent to the mailing address. “In case of refunds, shareholders who opted for ASBA can get the money electronically,” said a registrar.
An investment banker associated with the deal said: “irrespective of whatever application comes through ASBA or otherwise, once 90% of the amount comes in, registrars would tell the self-certified syndicate banks (those which offer the ASBA facility) to transfer money out of the investor’s account.” He further added that if the money goes beyond full amount then it would be moved to a public issue account and proportionate allotment would be done later.
MUMBAI
Oct 03, 2008
SEBI has extended ASBA — Application Supported by Blocked Amount — to rights issues with Tata Motors being the first company to incorporate the recently-introduced facility in its offering. Investors who apply for shares in this issue through ASBA, however, could see the money leaving their account much before allotment, which is contrary to the market regulator’s motive of introducing ASBA in the initial public offerings.
Such a scenario would arise as the rights issue guidelines clearly say the issuer can have immediate access to money if the issue has been subscribed at least 90%. And so the money would be debited from the investor’s account much before the allotment is made. The market regulator, incidentally, has extended ASBA facility to all categories of investors —institutional and retail — and so the number of applicants using this facility is expected to be high.
ASBA is part of the market regulator’s reform process for the primary market and co-exists with the current practice of IPO subscription with cheques. Earlier, the facility was available only for retail investors bidding at the cut-off price. Investors have to submit ASBA physically or electronically to the bank where his account is maintained. Banks, thereafter, block the application money till the basis of allotment is finalised or till withdrawal or rejection of the application, as the case may be.
ASBA also does away with the physical refund process, apart from reducing the time between an issue and its listing, since listing happens only after refunds are done. Market participants say the regulator could well have done some more groundwork before introducing ASBA to rights issue and also before extending it to all categories of investors.
“The Sebi circular does say the issuer can have immediate access to funds but there still exists a lot of confusion,” said a person familiar with the development. There are not many investors who are actually aware of this fact, he added. It is believed that various concerned entities, including registrars and investment bankers, met with Sebi officials to deliberate on this issue.
A Sebi official who wished not to be named said extending ASBA to the rights issue was the next logical step as the IPO market has dried up. “In case of Tata Motors, the money would be debited to the issuer’s account if the issue has been subscribed more than 90%. Excess, if any, would be credited back to the investor’s account after the allotment has been finalised,” he added. It is believed that the rights issue and ASBA guidelines would be amended in the near future to remove all such grey areas.
In effect, the real advantage of ASBA in the rights issue would be limited to the refund process, wherein money would directly be credited into the investor’s account instead of physical cheques being sent to the mailing address. “In case of refunds, shareholders who opted for ASBA can get the money electronically,” said a registrar.
An investment banker associated with the deal said: “irrespective of whatever application comes through ASBA or otherwise, once 90% of the amount comes in, registrars would tell the self-certified syndicate banks (those which offer the ASBA facility) to transfer money out of the investor’s account.” He further added that if the money goes beyond full amount then it would be moved to a public issue account and proportionate allotment would be done later.
Bankers, brokers squabble over fee
Bankers Claim: We Process ASBA Application;
Brokers Counter: But We Do The Marketing
Shailesh Menon & Ashish Rukhaiyar
MUMBAI
Oct 01, 2008
THE introduction of ASBA (Application Supported by Blocked Amount) has sparked off a tussle for commissions between broking firms and banks. While banks feel they have the right to pocket commission as they process applications and get subscriptions, brokers say they are equally deserving of the commission as they are instrumental in marketing the issue and getting clients to apply through ASBA.
The opening salvo has been fired by a large self-certified syndicate bank (SCSB), which recorded the most number of ASBA applications in the public issue of 20 Microns. According to market sources, the bank is considering approaching Sebi to claim commission (brokerage, in distributor parlance) for collecting investor applications and data processing.
“The bank is staking claims to around 1% (of total money procured or total amount allotted) as commission while handling public issues,” said a source in merchant banking circles. The public issue of 20 Microns was the first IPO to hit the market with ASBA facility for retail investors.
According to a Sebi release, ASBA accounted for nearly 10% (2,426 out of 25,003 applications) of the total retail applications. People familiar with the development, however, say the issue had its share of confusions with separate forms being printed for applicants wishing to use ASBA facility.
A broker, who did not wish to be named, said banks were even against having the column ‘broker’s/agent’s stamp & code’ in ASBA forms. “Banks say they are the ones who get the applicants and the money, and so there need not be any column for brokers,” said a broker who was involved in the marketing of the issue. “Banks do not go out and market the issue. That’s not their core business activity,” he added.
In case of 20 Microns, incidentally, separate forms were printed for investors wishing to use the new facility as the decision to incorporate ASBA was taken after the bidding forms were published. The forthcoming issues would, in all probability, be having single forms for all applicants. It is believed that SCCBs and investment banks met with officials of Sebi to discuss this issue, but the meeting ended without any concrete decision.
In contrast to the times before ASBA, self-certified syndicate banks (SCSBs) are required to collect ASBA application forms, block, unblock and unlock investor money and data processing. Data processing (or entry of investor data) was earlier done by registrars to the issue. As per ASBA rules, apart from handling share allotment, registrars are only required to fillup certain fields in the application form, check DP code and mark allotment money and the sum to be returned to the investor.
“The costs incurred by both brokers and banks will have to be split into two. Brokers should get a larger portion as they incur huge marketing costs while selling public issues. Banks should also be duly compensated for infrastructure costs incurred by them,” said a merchant banker attached to a private bank.
Broking commission for handling public issues generally range between 0.5% and 1.5%. But merchant bankers are of the opinion that banks — even if they get into marketing public issues — will not be able to bring institutional buyers and high networth clients, as most of them are advised by stock broking houses.
Brokers Counter: But We Do The Marketing
Shailesh Menon & Ashish Rukhaiyar
MUMBAI
Oct 01, 2008
THE introduction of ASBA (Application Supported by Blocked Amount) has sparked off a tussle for commissions between broking firms and banks. While banks feel they have the right to pocket commission as they process applications and get subscriptions, brokers say they are equally deserving of the commission as they are instrumental in marketing the issue and getting clients to apply through ASBA.
The opening salvo has been fired by a large self-certified syndicate bank (SCSB), which recorded the most number of ASBA applications in the public issue of 20 Microns. According to market sources, the bank is considering approaching Sebi to claim commission (brokerage, in distributor parlance) for collecting investor applications and data processing.
“The bank is staking claims to around 1% (of total money procured or total amount allotted) as commission while handling public issues,” said a source in merchant banking circles. The public issue of 20 Microns was the first IPO to hit the market with ASBA facility for retail investors.
According to a Sebi release, ASBA accounted for nearly 10% (2,426 out of 25,003 applications) of the total retail applications. People familiar with the development, however, say the issue had its share of confusions with separate forms being printed for applicants wishing to use ASBA facility.
A broker, who did not wish to be named, said banks were even against having the column ‘broker’s/agent’s stamp & code’ in ASBA forms. “Banks say they are the ones who get the applicants and the money, and so there need not be any column for brokers,” said a broker who was involved in the marketing of the issue. “Banks do not go out and market the issue. That’s not their core business activity,” he added.
In case of 20 Microns, incidentally, separate forms were printed for investors wishing to use the new facility as the decision to incorporate ASBA was taken after the bidding forms were published. The forthcoming issues would, in all probability, be having single forms for all applicants. It is believed that SCCBs and investment banks met with officials of Sebi to discuss this issue, but the meeting ended without any concrete decision.
In contrast to the times before ASBA, self-certified syndicate banks (SCSBs) are required to collect ASBA application forms, block, unblock and unlock investor money and data processing. Data processing (or entry of investor data) was earlier done by registrars to the issue. As per ASBA rules, apart from handling share allotment, registrars are only required to fillup certain fields in the application form, check DP code and mark allotment money and the sum to be returned to the investor.
“The costs incurred by both brokers and banks will have to be split into two. Brokers should get a larger portion as they incur huge marketing costs while selling public issues. Banks should also be duly compensated for infrastructure costs incurred by them,” said a merchant banker attached to a private bank.
Broking commission for handling public issues generally range between 0.5% and 1.5%. But merchant bankers are of the opinion that banks — even if they get into marketing public issues — will not be able to bring institutional buyers and high networth clients, as most of them are advised by stock broking houses.
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