Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

SEBI proposes fast track issuance of securities

The Securities and Exchange Board of India has announced
its intention to allow fast track issuance of securities under certain
conditions. It is nice to see SEBI doing something constructive to
make the primary market smoother and more efficient.

A spate of investor complaints after the IPOs of 1995-96 led to a
regulatory clampdown that has had a chilling effect on the primary
market. In 1995-96, the capital raised through the primary market was
more than 6.5% of gross domestic capital formation. Despite a revival
in the primary market in 2005-06 and 2006-07, the capital raised in
these years is less than 2.5% of gross domestic capital formation.

The regulatory clampdown has also led to the partial exporting of
our primary market. In 2006-07, the capital raised in the foreign
(ADR/GDR) market was about half of that raised in the domestic primary
market. In 1995-96, the corresponding figure was only 11% and until
1996-97, this figure had never crossed 25%.

A lot needs to be done to make the primary market vibrant once
again. The fast track issuance scheme addresses some of the needs of
well established companies trying to do a follow-on issue. The needs
of the IPO market also need to be addressed in course of time.

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