SEBI, through its Circular dated May 30, 2012, had issued guidelines for exit of de-recognized/ non-operational stock exchanges, wherein exchanges that had an annual turnover of under Rs 1,000 cr. (10 billion) before May 30, 2014 would be derecognized. On April 17, 2015, SEBI issued another Circular allowing further time of 18 months to companies listed on these regional exchanges to migrate to national stock exchanges such as the BSE or NSE. This was done pursuant to representations made by companies that were eligible to migrate to the national stock exchanges, but could not do so due to the lack of time. The latest Circular prescribes certain additional criteria for listing of such companies:
Firstly, listing is permitted only in respect of those classes of securities that were already listed in the non-operational stock exchanges. Further, the shareholding pattern of such companies shall not change materially in a manner that suggests change of control at the time of listing on nationwide stock exchanges. However, the promoters and directors of companies which fail to provide either the trading platform or an exit to their shareholders even after 18 months, will be subject to stricter scrutiny for any future association with securities markets. In such cases, any company that proposes to make a public offer or get registered with SEBI in any other capacity has to demonstrate that it has made adequate efforts for providing its shareholders an exit. This is a step in the right direction to help ensure that small investors are not left in the lurch by virtue of holding illiquid shares and companies that do not meet listing norms do not get away scot free. However, the latest Circular does not specifically provide exit options for shareholders. For instance, it may have been prescribed that in case of compulsory delisting, shareholders have received the exit price in accordance with Section 21 (Delisting of securities) of the Securities Contracts Regulation Act, 1956 and relevant guidelines.
Further, under the latest Circular, all nationwide stock exchanges need to have a dedicated cell to process the applications of exclusively listed companies of non-operational and exiting stock exchanges, and dispose of the applications within 2 months from the date of the same. While, SEBI had earlier directed nation-wide stock exchanges to immediately create a separate dedicated cell to expedite such listing process, no specific time period had been prescribed. SEBI needs to oversee that the processes required for such relisting have been properly instituted and eligible companies actually get listed on a priority basis and in a time-bound manner, to effectively serve the larger interest of investors of such companies.