handbook on startup_stock_exchange

Handbook on Start-up Stock Exchange

Guidelines of

Hi-tech Start-ups and New Businesses Platform

(Institutional Trading Platform)

By CA Anuraag Sharma

www.macrosglobal.com

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Table of Contents

Snap ........................................................................................................................................................................... 3

Advantages ................................................................................................................................................................ 3

Eligibility Conditions ................................................................................................................................................. 3

Eligibility Conditions & Proposed Changes ............................................................................................................ 3

Who are Qualified Institutional Buyer ................................................................................................................... 3

Who are Other Categories of Investor .................................................................................................................. 4

Maximum Cap on Holding Post-listing Capital ....................................................................................................... 4

Maximum Cap on Holding Post-listing Capital ..................................................................................................... 4

Proposed Changes ................................................................................................................................................. 4

Lock-in Period .......................................................................................................................................................... 4

Lock-in period ....................................................................................................................................................... 4


Trading Lot ............................................................................................................................................................... 5

Trading Lot ............................................................................................................................................................ 5


Migration to Main Board ......................................................................................................................................... 5

Migration to Main Board (Stock Exchange) .......................................................................................................... 5

Market Making ......................................................................................................................................................... 5

Trading Lot ............................................................................................................................................................ 5


Listing without Public Issue ..................................................................................................................................... 5

Listing without Public Issue (without IPO) ............................................................................................................ 5

Exemption .............................................................................................................................................................. 5

Listing pursuant to Public Issue ............................................................................................................................... 6

Listing pursuant to Public Issue (IPO) ................................................................................................................... 6


Exit from Platform .................................................................................................................................................... 6

De-listing from Platform by Stock Exchange ............................................................................................................ 7

Conclusion ................................................................................................................................................................. 7

Reference .................................................................................................................................................................. 7


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Snap:-

Recently SEBI (Security Exchange Board of India) has announced to relax the norms for

listing and trading of shares or securities (equity shares or convertible securities) for

new businesses and startups. SEBI has proposed to rename the existing Institutional

Trading Platform to High-tech Start-up & other new business Platform (earlier

known as Institutional Trading Platform- ITP).

This is a welcoming move by SEBI, and it will be further strengthening the startup

ecosystem and ease of business in India.

Advantages:-

Opportunity for Investors to invest in Startups, New businesses and SMEs;

No Long and non-ending compliances of stock exchanges – easy and hassle free;

Special Platform for trading shares of New businesses, startups and Small and

Medium Enterprises (SMEs);

Accessible to both institutional and non-institutional investors;

No restriction on number of years of business existence;

No restriction on profitability norms;

Will help the companies meet liquidity requirements by listing or bring IPO, find

investors and trade shares;

Similar to main stock exchange, Listing possible with and without IPO;

Compulsory Market making for small issues below Rs. 100 crore for at-least 3

years to ensure an active trade of shares of small businesses and help boost

liquidity.

However, startups will still need to meet certain requirements and conditions for listing

the securities on such platform; such conditions are mentioned below along-with the

proposed changes –

1. Eligibility Conditions:-

On date of filing draft information, pre-listing issued capital to be held by Qualified

Institutional Buyers (QIBs) by at-least –

i. 25% for technology related companies (companies intensive in the use of

technology, information technology, intellectual property, data analytics, bio-

technology or nano-technology to provide products, services or business

platforms with substantial value addition);

ii. 50% for any other company (non-technology related companies).

Proposed Changes:-

In addition to QIBs, prior shareholding of other categories of investors.

Minimum level of pre-listing holding to be 25% irrespective of sector.

Who are Qualified Institutional Buyer?

Public financial institution;

Scheduled commercial banks;

Mutual funds;

Foreign institutional investor registered with SEBI;


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Multilateral and bilateral development financial institutions;

Venture capital funds registered with SEBI;

Foreign Venture capital investors registered with SEBI;

State Industrial Development Corporations;

Insurance Companies registered with the Insurance Regulatory and Development

Authority (IRDA);

Provident Funds or Pension Funds with minimum corpus of Rs.25 crores;

Who are Other Categories of Investors?

Family trust or systematically important NBFCs registered with Reserve Bank of

India or intermediaries registered with SEBI, all with net-worth of more than

Rupees (INR) five hundred crore, as per the last audited financial statements;

Category III Foreign Portfolio Investor;

Any entity meeting all the following criteria:-

i. A pooled investment fund with minimum assets under management of USD

150 million;

ii. Registered with a financial sector regulator in the jurisdiction of which it is a

resident;

iii. resident of a country whose securities market regulator is a signatory to the

International Organization of Securities Commission’s Multilateral

Memorandum of Understanding (Appendix A Signatories) or a signatory to

Bilateral Memorandum of Understanding with SEBI;

iv. It is not resident in a country identified in the public statement of Financial

Action Task Force as:

a. a jurisdiction having a strategic Anti-Money Laundering or Combating

the Financing of Terrorism deficiencies to which counter measures

apply; or

b. a jurisdiction that has not made sufficient progress in addressing the

deficiencies or has not committed to an action plan developed with

the Financial Action Task Force to address the deficiencies;

2. Maximum Cap on Holding Post-Listing Capital:-

No person can hold 25% or more of the post-listing capital, individually or

collectively with persons acting in concert.

Proposed Changes:-

A person can hold more than 25% of shares of the post-listing capital.

3. Lock-in Period:-

The entire pre-issue capital of the shareholders shall be locked-in for a period of:-

i. 12 months if equity shares held by a venture capital fund or alternative

investment fund of Category I or a foreign venture capital investor;

ii. No lock-in for –


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a. equity shares allotted to employees under an employee stock option or

employee stock purchase scheme of the entity prior to the initial public

offer (if listing pursuant to public issue);

b. equity shares held by persons other than promoters, continuously for a

period of at least one year prior to the date of listing (without public

issue);

iii. 6 months for every other case.

Period of lock-in to begin from date of allotment (if listing pursuant to public issue) or

date of listing (without public issue).

Proposed Changes:-

The lock-in of 6 months may apply uniformly to all the categories of shareholders.

4. Trading Lot:-

The minimum trading lot shall be ten lakh rupees.

Proposed Changes:-

The minimum trading lot size may be lowered to five lakh rupees.

5. Migration to Main Board (Stock Exchange):-

The Company may migrate to the main board of stock exchange from the

platform after expiry of three years from the date of listing subject to compliance

with the eligibility requirements of the stock exchange.

6. Market Making:-

No existing rules for market making.

Proposed Changes:-

Compulsory market-making for a period of 3 years for issue size of less than

hundred crore rupees to boost liquidity.

7. Listing without public issue (without IPO):-

The company shall list its specified securities within 30 days from date of filing

of draft information.

The draft & final information shall contain the various disclosures as of the offer

document and shall be signed and certified from true and correct information by

all directors, the Chief Executive Officer, the Managing Director or Manager and

the Chief Financial Officer.

Exemption from the regulations of –

allotment;

issue opening / closing;

advertisement;

underwriting;


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sub-regulation (5) of regulation 26;

pricing;

dispatch of issue material;

minimum public shareholding;

approval from SEBI is required under sub-rule (7) of rule 19 from the

requirement of clause (b) of sub-rule (2) of rule 19 of Securities Contracts

(Regulation) Rules, 1957;

and other such provisions related to offer of specified securities to public.

8. Listing pursuant to public issue (IPO):-

Minimum application size shall be ten lakh rupees;

Number of allottees shall be more than 200;

The allocation in the net offer to public category shall be as follows:

i. 75% to institutional investors (including Archor Investors) -

allotment maybe on discretionary (choice) or proportionate- to

declare allotment mode before filing Red Herring Prospectus;

ii. 25% to non-institutional investors – allotment on proportionate

basis;

under-subscription in the non-institutional investor category shall be

available for subscription under the institutional investors‘ category;

In case of discretionary allotment to institutional investors, no institutional

investor shall be allotted more than 10% of the issue size;

Draft offer with disclosures and broad objectives to be filed;

The basis of issue price may include disclosures, except projections, as

deemed fit by the issuers in order to enable investors to take informed

decisions and the disclosures shall suitably caution the investors about

basis of valuation;

No Exemption as available to listing without public issue i.e. all provisions

of public issue to apply, subject to above conditions.

Proposed Changes:-

The allocation in the net offer to public category shall be :-

Not less than 50% to institutional investors and;

Not more than 50% to non-institutional investors.

The ceiling on allotment to individual institutional investor may be revised

upwards from 10% to 25%.

9. Exit from platform:-

Companies who have not offered public issue may exit from the platform after

approval from the platform’s stock exchange and if:-

its shareholders approve such exit by passing a special resolution through postal

ballot where 90% of the total votes and the majority of non-promoter votes have

been cast in favor of such exit proposal.


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10. De-listing from platform by stock exchange:-

Stock exchange may de-list companies who have not offered public issue and

failed to meet the compliances. In such case, No other company of same common

promoter/director (except independent director) shall be allowed to be listed on

the platform for the next 5 years; from the date of such listing.

Conclusion:-

The relaxed norms by regulators will strengthen the liquidity position in startups

while also cementing the compliances in fund-raising by new businesses and

startups, providing the excellent opportunities to SMEs, startups and new

businesses to list their companies on stock exchange with the welcoming move by

SEBI.

References:-

SEBI(ICDR) Regulations, 2016.

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About the Author:-

Anuraag Sharma is a Chartered Accountant

by professional and analyst at heart. He

carries a rich 4+ years of experience in

Financial Management and is a certified

business valuer. Anuraag is actively involved

in startup ecosystems of Indian, South East

Asian & European continents and has been

mentoring several entrepreneurs & startups

across the globe. This book is his attempt

along-with macrosglobal to educate about the

new norms and new stock exchange for the

start-ups and new businesses. Leave your

reviews towards the book at

[email protected]

Happy Reading!

https://www.linkedin.com/in/caanuraagsharma

mailto:[email protected]

https://www.linkedin.com/company/macrosglobal/