SEBI

SEBI Revision of provisions for Electronic Book Provider Platform

Electronic Book Provider

The Electronic Book Provider (EBP) is a SEBI-registered recognised stock exchange that provides an electronic platform for the private placement of securities. In other words, the EBP provides a way of issuing debt securities on a private placement basis. The platform will bring price discovery transparency and eliminate time and extra costs. Based on the representations received from the various market participants, the SEBI has reviewed the guidelines through a circular “Review of provisions pertaining to Electronic Book Provider platform” dated 10th October 2022. The said circular is issued to provide a fair opportunity to the bidder. It becomes essential that the allocation shall be based on the best bidder rather than on the bidder who possesses the best technology for placing the fastest bid. Further, the circular brings other modifications discussed in this article.

Eligibility Conditions for Primary issuance through Electronic Book Provider Platform

  • Eligible Participants on the EBP Platform

The bidders who are eligible on EBP platforms are:

  1. A qualified institutional buyer
  2. A non-qualified institutional buyer authorised to participate in the particular issue on the EBP platform.
  • Types of Issue of Securities on the EBP platform
Issue of Securities on the EBP PlatformIssue Size
Private placement of Debt securities and NCRPS: Green Shoe Option Shelf Issue   Subsequent issue Rs 50 crore or More Cumulatively amounts of Rs 50 Crore or more. All previous issues are equal to or more than Rs 50 crore.
Issues of Debt Securities and NCRPS on Private Placement by issuers in existence for less than 3 yearsAny size
Issue of non-equity Regulatory instruments including PDIs, PNCPS, PCPs, RNCPS.Any Size
Issues of Debt Securities and NCRPS on Private PlacementLess than RS 50 crore
Private placement of Municipal debt Securities or CDs or CPs

Obligations of Issuers on Electronic Book Provider Platform

The issuer shall have an obligation to perform the duty as mentioned below:

  1. Compliance with all the rules, regulations and laws concerning the private placement of Securities. Further, the modification states that the issuer shall include the number of non-QIB eligible participants for compliance under Section 42 of the Companies Act 2013[1].
  2. Supply memorandum and term sheet to Electronic Book Provider at least 2 days before the issue opening date.
  3. Issuers issuing securities for the first time through EBP shall need to supply a memorandum and term sheet at least 5 days before the issue opening date.
  4. The issuer shall include the following items in the memorandum and term sheet:
  5. The size of the issue and green Shoe portion provided it does not exceeds 5 times the base issue price.
  6. Interest rate parameters on Zero coupons, fixed coupons and floating coupons
  7. Date of opening and closing bid
  8. Minimum lot of bid
  9. Manner of bidding, namely open bidding or closed bidding
  10. Manner of allotment, namely uniform yield or multiple yields
  11. Manner of settlement, namely clearing corporation or escrow bank account
  12. Settlement Cycle
  13. Disclosure of estimated cut-off yield at least 1 hour before the opening of the bid.
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Enrollment of Participants

The provision states that the participants must enrol with the Electronic Book Provider. It is a one-time process and shall be valid till the time it is annulled or rescinded. Along with the enrolment, the KYC verification of participants shall be done in the following manner:

  1. KYC of existing clients shall be taken from SEBI-registered KYC registration agencies.
  2. EBP shall do KYC of QIB
  3. KYC of Non-QIB
  4. KYC of NON-QIB, participating through an arranger, shall be done by such arranger.

Further, the EBP shall perform the below-mentioned functions:

  1. Provide information to participants, including a memorandum and term sheet.
  2. Does not provide preferential treatment to any bidder

Moreover, the present circular has modified the responsibilities of the participants and states that the participantsare responsible for the below-mentioned functions:

  1. A confirmation letter to Electronic Book Provider signifying the participants are not using any software or algorithm for unfair access.
  2. They are not allowed to bid for an amount more than Rs 100 crore or 5 % of the base issue size.

Along with the modifications in the responsibility of participants, the present circular has also inserted new responsibilities for arrangers, who are as follows:

  1. The arranger can bid for multiple participants subject to their individual limits.
  2. The arranger shall specify the type of bid and disclose the breakup between proprietary and client bids.

Bidding, Allotment and Settlement Process

  • Bidding Timings and Period

The bidding timing and period shall be:

  1. Biding shall take place between 9 AM to 5 PM only on working days of the stock exchange.
  2. The bidding window shall be open for the period mentioned by the issuer; however, it shall be open for at least 1 hour before the start of bidding.
  3. The issuer can provide the information to the particular participants not later than 1 hour before the start of bidding.
  • Bidding Announcement
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The bidding announcement shall be made in the following ways:

  1. The announcement shall be made at least 1 working day before the commencement of the bidding process.
  2. The announcement shall include details of bid opening and closing time
  3. Any change in bidding time shall be made at least 1 day before the bidding process and be intimated to the Electronic Book Provider within its operating hours.
  • Bidding Process

The revision circular has inserted the bidding process and states that it shall be based on the following:

  1. Coupons Specified by issuer: The bids shall be placed in price for the face value and the coupon remaining constant.
  2. Coupon discovered during bidding:The bids shall be placed in coupon for the face value remaining constant.
  • Bids Modification 

The bids can be modified or cancelled provided:

  1. Such cancellation or modification can be made only during the bidding period
  2. Bids cannot be cancelled in the last 10 minutes of the bidding period. However, the present circular has modified the revision provision and allows the revision in the last 10 minutes for:
  3. Downward revision of coupon
  4. Upward modification of price
  5. Upward revision of bid size.
  • Bids Allotment and Settlement amount

The present circular has inserted the new provision for allotment and settlementamount for the bidder and states that it shall be based on the following:

  1. Coupons Specified by issuer:  The bid shall be arranged according to “Price Time Priority.”
  2. Uniform Yield Allotment:  The amount shall be based on the cut-off price
  3. Multiple yield allotment: The amount shall be based on the price quoted by each bidder or allottee.
  4. Coupon discovered during bidding: The bids shall be arranged according to “yield time priority.”
  5. Uniform Yield Allotment:  TheAmount shall be based on face value
  6. Multiple yield allotment: The amount shall be based on the price adjusted as per the coupon quoted by each bidder or allottee.
  • Disclosure of bids in a particular format
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The present circular has also modified the manner of disclosure of bids, namely:

1st Column: Coupon or Price or Spread

2nd Column: Amount demand at that particular coupon/ price/spread (in crore)

3rd Column: Cumulative amount demand (in crore)

Anchor Portion within the base issue price size

The present circular has inserted a new provision for determining the anchor portion for the specified anchor investors. The modifications allow the issuer toopt for the offer of “Anchor Portion”within the base issue size provided:

  1. The issuer has the liberty to select the anchor investor for the selected anchor portion.
  2. The issuer is at liberty to decide the allocation amount to the anchor investor, provided the total allocation to anchors shall not be more than 30% of the base issue size.
  3. The bidding is not allowed for the anchor portion on the EBP platform
  4. The issuer opting for the anchor portion shall disclose it in the memorandum, the term sheet, and the allocation amount.
  5. The issuer shall disclose the anchor investor and the allocated amount to the EBP with the placement memorandum and term sheet.
  6. The settlement amount shall be based on the following:
  7. Coupons specified by issuer:
  8. Uniform Yield Allotment:  Amount shall be based on the cut-off price
  9. Multiple yield allotment: Amount shall be based on the face value of the issue
  10. Coupon discovered during bidding:
  11. Uniform yield or multiple yields:  Amount shall be based on the face value of the issue

Further, the remaining issue portion shall be open for other participants on the Electronic Book Provider platform. Moreover, the anchor investor can also participate in the remaining portion, provided it has been identified as a participant by the issuer.

Obligation of Electronic Book Provider

The revision has included one more obligation in the list of EBP. It states that the Electronic Book Provider shall place a facility to determine the eligible participants who are allowed to quote within the defined limits or range. This step is introduced to avoid “Fat Finger “errors.

Conclusion

The SEBI is a body responsible for protecting investors from unfair practices. The representation received from the issuers, arrangers, banks, mutual funds has necessitated the need for revising the provisions of the Electronic Book Provider platform. The current modifications are issued to remove any difficulties for the bidders who bid through conventional techniques. The aim is to provide a better framework so that the participant who makes the best bid shall be given the opportunity of purchasing the securities. Moreover, the arranger is also refrained from using any software or algorithm that may influence the bidding process.

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