In 2012, SEBI had issued guidelines for exit of non-operational regional stock exchanges and companies exclusively listed on such stock exchanges (ELCs) which failed to list on stock exchanges having nationwide trading terminals and had moved such ELCs to a ‘dissemination board’ (DB) maintained by nationwide stock exchanges. On the DB, shareholders of ELCs were provided a market for dealing in their shareholding. Further, ELCs were obliged to list on nationwide stock exchanges or delist from DB by October 17, 2016. However, there was a lack of clarity on the options available to ELCs placed on the DB. To address this, SEBI has issued a circular on October 10, 2016.

Raising capital for listing on Nationwide Stock Exchanges: In order to list on nationwide stock exchanges, ELCs are required to meet the eligibility norms specified by the exchanges such as minimum paid-up capital and networth. SEBI has now permitted ELCs to raise capital through the preferential allotment route in terms of the ICDR Regulations to meet these requirements. The allotment will be eligible for relaxations in procedural requirements and from the obligations to make an open offer under the Takeover Regulations.

Procedure to provide exit to investors: SEBI has now prescribed the procedure to be followed by ELCs which intend to provide an exit to shareholders subsequent to which they will be removed from the DB. The promoter of an ELC shall make a public announcement about the exit opportunity and appoint an independent valuer to determine the price to be paid to public shareholders to acquire their shareholding. Promoters are required to make payments to the exiting shareholders within 15 days and complete the entire process within 75 days and shall also be liable to acquire shares upto a period of one year from the completion of the offer.

ELCs are required to submit a plan of action to the designated stock exchange (DSE) within 3 months of the date of the circular and the DSE shall review the plan and ensure completion within 6 months. Promoters and directors of ELCs which fail to demonstrate adequacy of efforts in this regard shall be liable to remedial action, including prohibition from accessing the securities market for 10 years, freezing of shareholding, and attachment of bank accounts/ assets. The circular is a welcome move and is bound to expedite the process.