Mint explainer: Why Sebi rethinks on 1% security deposit on public/rights issues
BSE. This security deposit amount is refundable or forfeitable in the manner specified by the board. The requirement of 1% security deposit was put in place by the regulator for public/rights issues so that an issuer expeditiously redresses investor complaints pertaining to refund of application money and allotment of securities, etc.
After various deliberations, industry stakeholders suggested that the requirement of 1% security deposit for public/rights issues may be done away with for ease of doing business. The expert committee, in its consultation paper, stated that in the light of several reforms and present framework for public/rights issues such as application through ASBA (application supported by blocked amount), UPI mode of payment, mandatory allotment in demat, concerns of post-issue investor complaints on refund of application money, non-dispatch of physical certificates, etc, do not arise. Pertinently, this will also lead to the reduction of cost and compliance for corporates.
Shefali Shankar, associate at law firm MDP & Partners, believes that the objective of the mandatory 1% security deposit was largely to take care of the investor grievances, if any. She adds, however, in the current scenario, investor complaints are significantly low. Given this, the mandatory requirement of 1% security deposit does not hold much relevance.
If this mandatory requirement is done away with, the issuer companies can also save on their costs. This will be an important move and will certainly bring some relief to the companies that have a plethora of regulatory requirements to comply with. Removing the 1% requirement aligns with facilitating a more efficient and accessible primary market for companies, ultimately promoting
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