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What is ISIN?

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Each of the securities dematerialized in the NSDL/CDSL depository bears a distinctive ISIN – an identification number. International Securities Identification Number (ISIN) is a unique identification number for each security issued in any of the International Standards Organization (ISO) member countries in accordance with the ISIN standard (ISO 6166). ISO 6166 was developed for use in an international (cross-border) as well as domestic trades. ISIN is a 12-character long identification mark. It has three components – a pre-fix, a basic number and a check digit. The pre-fix is a two letter country code as stated under ISO 3166 The number comprises nine alphanumeric characters  (letter and/or digits).The check digit at the end of the ISIN is computed according to the modulus 10 “Double-Add-Double”. It establishes that the ISIN is valid. Securities issued by the same company, issued at different times or carrying different rights, terms, and conditions are considered different securities for the purpose of allocating ISIN and are allotted distinct ISINs.In India, SEBI assigns ISIN to various publicly traded securities. Different ISINs allocated to the physical and dematerialized securities of the same issue. To illustrate, ISIN INE 475c  01 012                       has the following break up: IN – India E- Company Last digit (2 in this example) – check digit First four digits 475c – Company Serial Number; 01- Equity (it can be mutual fund units, debt or Government securities); 01 – issue number The third digit (E in the above example) may be E, F, A, B or 9. Each one carries the following meaning: E – Company F- Mutual Fund Unit A- Central Government Security B – State Government Security 9 – Equity Shares with rights which are different from equity shares bearing INE number. Whenever dealing with ISIN number, it is important to pay special attention to the third digit.

Rematerialisation Process

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What is re-materialization? Rematerialization is the exact reverse of dematerialization. It Refers to the process of issuing physical securities in place of securities held electronically in book-entry form in a depository. Under this process, the depository account of a beneficial owner is debited for the securities sought to be re-materialized and physical certificates for the equivalent number of securities is/are issued. Re-materialization Process 1.The DP should provide rematerialisation request forms (RRF) to clients 2. The client should complete RPF in all respects and submit it to the DP. 3. The DP should check RPF for validity, completeness and correctness. In particular, the following points should be checked There is sufficient free balance available in the client’s account to honor the re-materialization request. The name of client on RRF is exactly the same as that in the client account. In case of joint holding, the order of names appearing in RRF is the same as in the client’s account. Details like security type, face value, issuer’s name and lock-in status are filled-in correctly. The client has indicated his opinion to receive physical certificates either in jumbo lot for the entire quantity requested or in a market lot. Separate RRF is submitted for ‘free and locked-in securities’. Securities locked-in for a different reason; each ‘ISIN’ securities of different paid-up value; and each client account. RRF is signed by ‘the sole holder in case of single holding; all joint holders in case of joint holding, authorized signatories in the case of corporate accounts, constituted attorney in the case of NRI accounts. 4) If RRF is not found in order, the DP should return the RRF to the client for rectification. 5) If RRF is found in order the DP should accept RRF and issue an acknowledgement to the client. 6) DP should enter the re-materialization request in DPM. DPM will generate a remat request number (RRN) which should be mentioned on RRF. 7) An authorized person, other than one who entered the RRF details in DPM, should verify the details of RRN  and release a request to the depository. 8) DP should complete the authorization of RRF and forward to the issuer or its R & T agent for re-materialization within seven days of accepting it from the client. 9) The issuer of its R & T agent should verify the RRF for validity, completeness and correctness. It should also match the details with the intimation received from the depository against the same RRN. 10) In case the issuer or its R & T agent finds RRF in order, it should confirm the remat request. The issuer or its R & T agent should then proceed to issue the physical security certificates and dispatch them to the beneficial owner. 11) The DP, on receiving confirmation of debit entry in DPM, should inform the client accordingly. The entire process takes a maximum of 30 days. No trading is possible on the securities sent for remat. This is the complete process of re-materialization of securities.

Dematerialization

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What is dematerialization? Dematerialization is the process of converting physical shares into an electronic form. Shares once converted into the dematerialized form are held in Demat account. India adopted the demat system successfully and there are plans to facilitate the trading of almost all financial assets in demat format in the future. Advantages of Dematerialization Share transactions like sale or purchase and transfer/transmission etc. can be effected in a much simpler and faster way.  There is no risk due to loss on account of fire, theft or mutilation.  There is no chance of bad delivery at the time of selling shares as there is no signature mismatch. Transaction costs are usually lower than that in the physical segment. The bonus /rights shares allotted to the investor will be immediately credited into his account. Time and money is saved as you are not dealing in paper now. You need not go to the notary, broker for taking delivery or submitting the share certificate Liquidity is very high in case of demat format as whole process in automated. Interest on loan against demat shares are less as compared to physical shares Investors save stamp duty while transferring shares in demat format. Securities that can be dematerialized According to the SEBI (Depositories and Participants) Regulations, 1996, the following securities are eligible for holding in demat form Shares, Scrips, Stocks, Bonds, Debentures, debenture stock or other marketable securities of similar nature of any incorporated company of body corporate including underlying shares of ADRs and GDRs Units of Mutual Funds, Rights under collective investment schemes and venture capital funds, commercial paper, certificate of deposit, securitized debt, money market instruments, and unlisted securities. Dematerialization Process (as per NSDL website) The client (registered owner) will submit a request to the DP in the ‘Dematerialization Request Form for dematerialization, along with the certificates of securities to be dematerialized. Before submission, the client has to deface the certificates by writing “SURRENDERED FOR DEMATERIALISATION”. The DP will verify that the form is duly filled in and the number of certificates, number of securities and the security type (equity, debenture etc.) are as given in the DRF. If the form and security count is in order, the DP will issue an acknowledgment slip duly signed and stamped, to the client. The DP will scrutinize the form and the certificates. This scrutiny involves the following —Verification of Client’s signature on the dematerialization request with the specimen signature (the signature on the account opening form). If the signature differs, the DP should ensure the identity of the client. Compare the names on DRF and certificates with the client account, Paid up status, ISIN (International Securities Identification Number), Lock – in status, Distinctive numbers etc. In case the securities are not in order, they are returned to the client and acknowledgment is obtained. The DP will reject the request and return the DRF and certificates in case: A single DRF is used to dematerialize securities of more than one company. The certificates are mutilated, or they are defaced in such a way that the material information is not readable. It may advise the client to send the certificates to the Issuer/ R&T agent and get new securities issued in lieu thereof. Part of the certificates pertaining to a single DRF is partly paid-up; the DP will reject the request and return the DRF along with the certificates. The DP may advise the client to send separate requests for the fully paid-up and partly paid-up securities. Part of the certificates pertaining to a single DRF is locked-in, the DP will reject the request and return the DRF along with the certificates to the client. The DP may advise the client to send a separate request for the locked-in certificates. Also, certificates locked-in for different reasons should not be submitted together with a single DRF In case the securities are in order, the details of the request as mentioned in the form are entered in the DPM (software provided by NSDL to the DP) and a Dematerialization Request Number (DRN) will be generated by the system. The DRN so generated is entered in the space provided for the purpose in the dematerialization request form. A person other than the person who entered the data is expected to verify details recorded for the DRN. The request is then released by the DP which is forwarded electronically to DM (DM – Depository Module, NSDL’s software system) by DPM. The DM forwards the request to the Issuer/ R&T agent electronically. The DP will fill the relevant portion viz., the authorization portion of the demat request form. The DP will punch the certificates on the company name so that it does not destroy any material information on the certificate. The DP will then dispatch the certificates along with the request form and a covering letter to the Issuer/ R&T agent. The Issuer/ R&T agent confirms acceptance of the request for dematerialization in his system DPM (SHR) and the same will be forwarded to the DM if the request is found in order. The DM will electronically authorize the creation of appropriate credit balances in the client’s account. The DPM will credit the client’s account automatically. The DP must inform the client of the changes in the client’s account following the confirmation of the request. The issuer/ R&T may reject dematerialization request in some cases. The issuer or its R&T Agent will send an objection memo to the DP, with or without DRF and security certificates depending upon the reason for rejection. The DP/Investor has to remove reasons for objection within 15 days of receiving the objection memo. If the DP fails to remove the objections within 15 days, the issuer or its R&T Agent may reject the request and return DRF and accompanying certificates to the DP. The DP, if the client so requires, may generate a new dematerialization request and send the securities again to the issuer or its R&T Agent. No fresh request can be generated for the same securities until … Read more

Depository system of India

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Background: The earlier settlement system on Indian stock exchanges was very inefficient as it was unable to take care of the transfer of securities in a quick/speedy manner. Since the securities were in the form of physical certificates; their quick movement was again difficult. This led to settlement delays, theft, forgery, mutilation, and bad deliveries and also to added costs. To wipeout these problems, the Depositories Act 1996 was passed.  It was formed with the purpose of ensuring free transferability of securities with speed, accuracy & security. It has been able to do so by: Making securities of public limited companies freely transferable, subject to certain exceptions. Dematerializing the securities in the depository mode. Providing for maintenance of ownership records in a book entry form. What is Depository? A depository is an institution or a kind of organization which holds securities with it in De-Mat form. In this, trading is done among shares, debentures, mutual funds, derivatives, F&O, and commodities. It is a company that maintains a record of investors dematerialized, shareholding in individual accounts, which are known as the demat account. Depositories in India Fundamentally, there are two sorts of depositories in India.     National Securities Depository Limited (NSDL)     Central Depository Service (India) Limited (CDSL). These are regulated by SEBI and are governed by the Depositories Act, 1996 NSDL: National Securities Depository Limited (NSDL) is an Indian Central securities depository based in Mumbai.  It was established on 8 November 1996 as the first electronic securities depository in India with national coverage. It was established based on a suggestion by a national institution responsible for the economic development of India . CDSL: The second depository Central Depository Services Limited (CDSL) has been promoted by Bombay Stock Exchange and Bank of India. It was formed in February 1999. Both depositories have a network of Depository participants (DPs) which are further electronically connected to their clients. So, DPs act as a link between the depositories and the clients. What are the Depository Participants? Depository Participant (DP) is described as an Agent (law) of the depository. They are the intermediaries between the depository and the investors. The relationship between the DPs and the depository is governed by an agreement made between the two under the Depositories Act. In a strictly legal sense, a DP is an entity who is registered as such with SEBI under the sub section 1A of Section 12 of the SEBI Act. Who can become Depository Participant? SEBI (D&P) Regulations, 1996 prescribe a minimum net worth of Rs. 50 lakh for stockbrokers, R&T agents and non-banking finance companies (NBFC), for granting them a certificate of registration to act as DPs. If a stockbroker seeks to act as a DP in more than one depository, he should comply with the specified net worth criterion separately for each such depository. No minimum net worth criterion has been prescribed for other categories of DPs; however, depositories can fix a higher net worth criterion for their DPs. Services provided by Depositories: Dematerialization (usually known as demat) is converting physical certificates of Securities to electronic form Rematerialisation, known as re-mat, is reverse of demat, i.e. getting physical certificates from the electronic securities. Transfer of securities, change of beneficial ownership Settlement of trades done on exchange connected to the Depository Pledging and Unpledging of Securities for the loan against shares Corporate action benefits directly transfer to the Demat and Bank account of the customer

Allotment Procedure in IPO

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There are different segments of Investors who invest in IPOs. The three important segments are Retail Investors, Qualified Institutional Buyers, and Non Institutional buyers. As per SEBI guidelines, there are a different set of allocation rules for different types of Book Building Issues. An issuer can issue securities to Investors in two ways: 100% book building and 75% book building (of the net offer to the public). We will see, these 3 important cases of allotment procedures below. Case 1: Issuer company makes an issue of 100% of the net offer to the public through 100% book building process. Allocation: Not less than 35% of the net offer to the public to Retail individual investor. Not less than 15% of the net offer to the public to NonInstitutional Investors i.e. investors other than retail individual investors and qualified institutional buyers. Not more than 50% of the net offer to the public to Qualified Institutional Buyer (out of which 5% to be specifically allocated to mutual funds) However 50% of net offer to the public shall be mandatory allotted to the qualified institutional buyers. Case 2: Issues made under Rule 19(2)(b) of Securities Contract Regulation, Rules 1957, with 60% mandatory allocation to Qualified Institutional Buyers (out of which 5% to be specifically allocated to mutual funds) Allocation: The percentage allocation to retail individual investors and non-institutional investors shall be 30% and 10% respectively. Case 3: CAn issuer company makes an issue of 75% of the net offer to public through book building process and 25% at the price determined through book building. Allocation: In the book built portion, not less than 25% the net offer to the public to non qualified institutional buyers. Not more than 50% of the net offer to the public to Qualified Institutional Buyer (out of which 5% to be specifically allocated to mutual funds) The balance 25% of the net offer to the public offered at a price determined through building to retail individual investors who either not participated or have not received allocation, in the book built portion.

Marketing Strategy for IPO

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Marketing of IPO is very important to ensure 100% subscription of an IPO in all the segments. Marketing Strategy of IPO should be prepared by Marketing and PR team of the issuer with the Consultant having experience of Business-to-investor marketing. A wide spectrum of marketing tool should be used to achieve significant over-subscription from institutional as well as retail investors segment. The Road show In the road show a company and its underwriters transverse through the country as well as abroad. They conduct several meetings with potential investors; security analysis, brokers and potential underwriting syndicate members.   Some of these meetings are one-to-one, but most are group meetings. The road show is most effective marketing tool for Institutional investors. The road show is conducted in the weeks immediately preceding the effectiveness and pricing of IPO, many indications of interest are placed immediately after a road show stop. The company’s story which may have been first told at the organizational meetings, which has been converted into an onscreen summary to be conveyed in 30 minutes or less to an astute and inquisitive audience can make or break an IPO. A successful road show typically, has a meaningful impact on the IPO price and on initial aftermarket trading Marketing strategy for retail investors Top 15 cities in India contribute more than 90% to the amount raised in IPOs. Therefore it is important to take press conferences in key cities. Advertisements in Newspapers, Business channels, and public relations campaign. Management interviews in print and electronic media. Broker conferences, press conferences etc. Site visit for key brokers across India. Sustained awareness program before SEBI observations, through corporate advertisement campaign. A good website and youtube channel having corporate videos, testimonials of customers etc. are important marketing tools. Marketing strategies for HNIs 25% of the Marketing budget of IPO goes in targeting High Net Worth Individuals (HNIs) of India and abroad. Initial contacts with High Net Worth Individuals (HNI) by Private Client Services (PCS) sales person Key HNI meet with the management Marketing strategies for qualified institutional investors. Develop equity story through research report Communicate equity story during pre-marketing where sector analysts interface with fund managers to discuss financials and answer preliminary questions Collate pre-marketing feedback and decide floor price Follow-up by senior salespersons to address investor queries Prepare senior personnel for management roadshows based on the interaction of the sector analyst and salespersons with fund managers. Finalize the management road show schedule to maximize investor coverage across investor geographies. One-on-one meetings and group functions with company management – video/telephone conferences in secondary cities as needed Regular interface by salespersons with fund managers to follow-up for bids.

Procedure for the bidding

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As an Investor when we apply to an IPO, all we know is Brand Price of the IPO, It’s issue size, duration for subscriptions and views of analysts on the IPO based on it’s fundamental analysis. We don’t know how this bidding procedure takes place and on what basis the allotment is done. In this post we will see the method and procedures of bidding in an IPO. The method and procedures of bidding is subject to following: Bid is required to be kept open for at least 3 working days and no more than 7 working days, which may be extended to a maximum of 10 working days in case the price band is revised. Bidding is permitted only if an electronically linked transparent facility is used. The ‘syndicate members’ are required to be present at the bidding centers so that at least one electronically linked computer terminal all the bidding centers is available for the purpose of bidding. a) The number of bidding centers, in case 75% of the net offer to the public is offered through the book building process shall not be less than the number of mandatory collection centers as specified in regulations. In case 100% of the net offer to the public is made through the book building process, the bidding centers shall be at all the places, where the recognized stock exchanges are situated. b) The same norms as applicable for collection centers shall be applicable to the bidding centers also. Individual, as well as qualified buyers, shall place their bids only through the brokers who shall have the right to vet the bids. The applicant is required to enclose the proof of DP ID and Client ID along with the application while making a bid. The investors shall have the right to revise their bids provided that Qualified Institutional Buyers are not be allowed to withdraw their bids after the closure of the bidding. During the period the issue is open to the public for bidding, the applicants may approach the brokers of the stock exchanges through which the securities are offered under the online system to place an order for bidding to securities. Every broker shall accept orders from all clients/investors who place orders through him. Bidding Form a)There shall be a standard bidding form to ensure uniformity in bidding and accuracy. b)The bidding form before being issued to the bidder shall be serially numbered at the bidding centers and date and time stamped. c)The serial number may be system generated or stamped with an automatic numbering machine. d)The bidding form shall be issued in duplicate signed by the investor and countersigned by the syndicate member, with one form for the investor and the other for the syndicate member(s)/book runner(s). At the end of each day of the bidding period, the demand shall be shown graphically on the terminal for information of the syndicate members as well as the investors. The identities of the Qualified Institutional Buyers making the bidding shall not be made public. The stock exchanges shall display data pertaining to book built issues in a uniform format, interalia giving category-wise details of the bids received indicative format as given in the guidelines. The data pertaining to an issue shall be displayed on the site for a period of at least three days after closure of bids. After the closure of the issue, the bids received are aggregated under different categories i.e. firm allotment, qualified institutional buyers (QIBs), Non-institutional buyers (NIBs), retails etc. The over subscription ratios are then calculated for each of the categories as against the shares reserved for each of the categories in the offer document. Within each of these categories, the bids are then segregated into different buckets based on the number of shares applied for. The over-subscription, ratio is the applied to the number of shares applied for and the numbers of shared to be allotted for applicants in each of the bucket is determined. Then the number of successful allotees is determined. The process is followed in case of proportionate allotment. In the case of allotment for QIBs, it is subject to discretion of the post issue lead manager. Where the lead book runner has reasons not to accept a qualified institutional buyer’s bid, the same is required to be done at the time receipt of the bids and the reasons therefore is required to the bidder Ideally, the share should trade in secondary market on T+6 day after Bid Closure at T day.

Eligibility Norms for companies issuing securities

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The company issuing securities through an offer document shall satisfy the following conditions: 1.1 Filing of offer document 1.1.1) No company shall make any issue of a public issue of securities, unless a draft prospectus has been filed with the Board, through an eligible Merchant Banker, atleast 21 days prior to the filing of Prospectus with the Registrar of Companies (ROCs).     Provided that if within 21 days from the date of submission of draft Prospectus, the Board specifies changes, if any, in the draft Prospectus (without being under any obligation to do so), the issuer or the Lead Merchant banker shall carry out such changes in the draft prospectus before filing the  prospectus with ROCs. 1.1.2) No listed company shall make any issue of security through a rights issue where the aggregate value of securities, including premium, if any, exceeds Rs.50 lacs, unless the letter of offer is filed with the Board, through an eligible Merchant Banker, at least 21 days prior to the filing of the Letter of Offer with Regional Stock Exchange (RSE). Provided that if, within 21 days from the date of filing of draft letter of offer, the Board specifies changes, if any, in the draft letter of offer, (without being under any obligation to do so), the issuer or the Lead Merchant banker shall carry out such changes before filing the draft letter of offer with RSE. 1.1.3) Companies barred not to issue security    No company shall make an issue of securities if the company has been prohibited from accessing the capital market under any order or direction passed by the Board. 1.1.4) Application for listing    No company shall make any public issue of securities unless it has made an application for listing of those securities in the stock exchange (s). 1.1.5) Issue of securities in dematerialized form No company shall make public or rights issue or an offer for sale of securities, unless:    (a) the company enters into an agreement with a depository for dematerialization of securities already issued or proposed to be issued to the public or existing shareholders; (b) and the company gives an option to subscribers/ shareholders/ investors to receive the security certificates or hold securities in dematerialized form with a depository.     Explanation: A depository shall mean a depository registered with the Board under the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996. 1.2) Initial Public Offerings by Unlisted Companies     2.2.1) An unlisted company may make an initial public offering (IPO) of equity shares or any other security which may be converted into or exchanged with equity shares at a later date, only if it meets all the following conditions:     (a) The company has net tangible assets of at least Rs. 3 crores in each of the preceding 3 full years (of 12 months each), of which not more than 50% is held in monetary assets. Provided that if more than 50% of the net tangible assets are held in monetary assets, the company has made firm commitments to deploy such excess monetary assets in its business/project (b) The company has a track record of distributable profits in terms of Section 205 of the Companies Act, 1956, for at least three (3) out of immediately preceding five (5) years     Provided further that extraordinary items shall not be considered for calculating distributable profits in terms of Section 205 of Companies Act, 1956;   (c) The company has a net worth of at least Rs. 1 crore in each of the preceding 3 full years (of 12 months each) (d) In case the company has changed its name within the last one year, atleast 50% of the revenue for the preceding 1 full year is earned by the company from the activity suggested by the new name; and (e) The aggregate of the proposed issue and all previous issues made in the same financial year in terms of size (i.e., offer through offer document + firm allotment + promoters contribution through the offer document), does not exceed five (5) times its pre-issue networth as per the audited balance sheet of the last financial year. 1.2.2    An unlisted company not complying with any of the conditions specified in Clause 1.2.1 may make an initial public offering (IPO) of equity shares or any other security which may be converted into or exchanged with equity shares at a later date, only if it meets both the conditions (a) and (b) given below:    (a) (i) The issue is made through the book-building process, with at least 50% of the issue size being allotted to the Qualified Institutional Buyers (QIBs), failing which the full subscription monies shall be refunded.                                                     OR     (a) (ii) The project has at least 15% participation by Financial Institutions/ Scheduled Commercial Banks, of which at least 10% comes from the appraiser(s). In addition to this, at least 10% of the issue size shall be allotted to QIBs, failing which the full subscription monies shall be refunded.        AND      (b) (i) The minimum post-issue face value capital of the company shall be Rs. 10 crores.                   OR      (b) (ii) There shall be a compulsory market-making for at least 2 years from the date of listing of the shares, subject to the following: (a)  Market makers undertake to offer buy and sell quotes for a minimum depth of 300 shares; (b) Market makers undertake to ensure that the bid-ask spread (difference between quotations for sale and purchase) for their quotes shall not at any time exceed 10%: (c) The inventory of the market makers on each of such stock exchanges, as on the date of allotment of securities, shall be at least 5% of the proposed issue of the company. 1.2.2.A) An unlisted public company shall not make an allotment pursuant to a public issue or offer for sale of equity shares or any security convertible into equity shares unless, in addition to satisfying the conditions mentioned in Clause 1.2.1 or 1.2.2 as the case may be, … Read more

Primary Market Prospectus

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A large number of new companies float public issue. Most of these companies are genuine, but quite a few may want to exploit the investors. Therefore it is important for Investors to obtain detailed information about a Company before investing i it. What is Prospectus? As per the guidelines issued by SEBI (Securities and Exchange Board of India), it is mandatory for disclosure to the public. This disclosure includes detailed information like the reason for raising the money, the way money is proposed to be spent, the return expected on the money etc. This information is in the form of ‘Prospectus’. It acts as both, a disclosure document and a marketing document. It required to contain a detailed description of the business, its current and past performance, the projects, cost of the projects, means of financing, product and capacity etc. It must also give a description of management structure, management salaries, operations, and financial conditions, dividend policy and Market capital of the company etc. It should also include information regarding the size of the issue, the current status of the company, its equity capital, details of promoters, underwriting, statutory compliances etc. It normally starts with a table of contents, definitions, risk factors, the summary of an issuer and financial data. This is followed by a detailed disclosure under three sections.: a)Issue Structure b) Issuer Information c) General and Statutory Information This way the Offer document covers all the relevant information to help an investor to make his/her investment decision. ‘Draft Offer document‘ Draft offer document means the offer document in draft stage. The draft offer documents are filed with SEBI, atleast 21 days prior to the filing of the Offer Document with Registrar of Companies (ROC)/ Stock Exchanges (SEs). The Draft Offer document will be available on the SEBI website for public comments for a period of 21 days from the filing with the Draft Offer document with SEBI. SEBI may specify changes if any which Company with the help of Merchant Banker shall carry out before submitting offer document to the ROC/SEs Abridged Abridged Prospectus is shorter version of Prospectus. It contains all the salient features of a Prospectus. It accompanies the application form of public issue. Red-Herring Red Herring Prospectus is a prospectus which does not have details of either price or number of shares being offered or the amount of issue. Shelf A Prospectus in respect of which the securities or the class of securities included therein are issued for subscription in one or more issues over a certain period without the issue of a further prospectus is called as Shelf Prospectus.

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