Author: Deepanshi Kalra
The stock exchange is an organized market where traders, investors, and brokers buy and sell securities, shares, and bonds. In order words, it is an organized market for buying and selling of corporate and securities. They are sold by following a set of well-structured rules and regulations. Trading in stock is done systematically and securely. It is an essential factor/component in the capital market.
According to Securities Contracts (Regulation) Act 1956 –
Stock exchange means any body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating, or controlling the business of buying and selling or dealing in securities.
Buyers and sellers are exchanging their stocks regularly leading to persistent change in the ownership of stocks. There is two prominent stock exchange in India – BSE, and NSE. Bonds that are traded are typically Over-the-Counter (OTC) bonds, however, in Stock exchange corporate bonds are also sold. Trading in terms of electronic and floor trading occurs. Through stock exchange companies aim to raise their capital and investors. The rules and regulations in a Stock exchange are regulated by the Securities and Exchange Board of India.
- Contributes to economic growth as it helps in capital formation through the trading of securities which leads to economic efficiency.
- Facilitates liquidity and marketability to existing securities by enabling the investors to sell and purchase at a suitable platform.
- Provide an apt position where an economy stands by playing the role of a barometer.
- Determines the valuation of securities that offer profitable ground for creditors, investors, and government.
- Assists in raising capital for the wider growth of companies leading to broader avenues and prospects in performing its functions.
- Regulates traded shares adequately leading to the active allocation of capital for maximization of profits.
When securities of a company are added in the list of securities that are allowed to be traded on the stock exchange, then those securities are said to be listed. Without listing, securities cannot be bought or sold in the stock exchange. However, it is not compulsory to list unless it is a public listed company.
Another requirement comes from the Company Act which states that – Wherever securities are offered to the public for subscription through the issue of the prospectus, those are necessarily required to be listed on the stock exchange within a given time frame. Listing helps in the easy buying and selling of securities. For example, if a shareholder of a private company wants to sell his company shares then he will have to look for a specific buyer who is willing to purchase it, but in case the company is listed, then his shares can be easily sold.
If a company fails to list within a given time frame then the company is required to refund an entire amount of the funds collected for application.
In order to list securities, a company must file an application in the prescribed form before issuing the prospectus by the company with the exchange. Listing guidelines are specified by SEBI, Stock Exchange, Companies Act,1956 also laid down specific guidelines to order for listing securities with the exchange board.
Conditions for listing of securities-
The listing of securities is dealt with the S.21 of Securities Contract (Regulation) Act, 1956-
The documents to be submitted for the same are provided in S.19 of the Securities Contract (Regulation) Rules 1957. It states the requirements and documents to be submitted with respect to the listing of securities on a recognized stock exchange. These are –
a) Memorandum and articles of association and, in case of a debenture issue, a copy of the trust deed.
b) Copies of all prospectuses or statements in lieu of prospectuses issued by the company at any time.
c) Copies of offers for sale and circulars or advertisements offering any securities for subscription or sale during the last five years.
d) Copies of balance sheets and audited accounts for the last five years, or in the case of new companies, for such a shorter period for which accounts have been made up.
e) Copies of the statement showing dividends and cash bonuses.
f) Certified copies of agreements or other documents relating to arrangements.
Other important statements and copies in reference to the company being registered for listing.
In the Companies Act, 1956 section per S. 73 requires a company seeking listing of its securities on a stock exchange to submit a Letter of application to all the stock exchanges where it proposes to have its securities listed before filing the prospectus with the registrar of companies.
Similarly, as per Securities and Exchange Board of India guidelines, the company seeking to register its listing is required to complete the allotment of securities offered to the public within 30 days of the date of closure of the subscription list and approach the designated stock exchange for approval of the basis of allotment.
In addition, it is essential for the Issuer company to complete the formalities for trading at all the stock exchanges where the securities are to be listed within 7 working days of finalization of the basis of allotment. Whereas the companies making public/rights issues are required to deposit 1 % of the issue amount with the designated stock exchange before the issue price.
For listing their securities, the companies have to comply with the stock exchange guidelines as well in order to suffice its requirement so that listing can be done successfully.
PRE AND POST LISTING CONDITIONS
S21 – Compliance with the requirement of listing agreement is a statutory obligation of the company or body corporate whose securities are listed. Prima Facie is known as the Listing Agreement.
Failure to comply can lead to two implications –
- Penalty (up to 25 crores)
When a company wants to remove its registered securities from the stock exchange, it can delist itself. This can happen even when it does not comply with requirements then the stock exchange may remove the securities of the company.
Delisting can be classified as:
- Voluntary – When a listed company decides to permanently remove its securities from a stock exchange then it voluntarily registers for delisting its securities. This situation arises mainly due to the merger or amalgamation of one company with the other or due to the non-performance of the shares on the particular exchange in the market.
- Compulsory – Compulsory delisting refers to permanent removal of securities of a listed company from a stock exchange as a penalizing measure at the behest of the stock exchange for not making submissions/comply with various requirements set out in the Listing agreement within the time frames prescribed.
According to Section 21 (a) – The Stock exchange can delist securities of a company or body corporate for –
- Reasons to be recorded in writing
- After giving an opportunity of being heard
So the reasons for delisting compulsorily by the stock exchange are as follows:
- Failure to comply with the listing agreement.
- Continuous losses for 3 years and negative net worth.
- Infrequent trading during the preceding 3 years.
- Either Company or directors are convicted under any offence by SEBI or depositors act and punished with fine of not less than 1 crore or imprisonment of not less than 3 years.
- The percentage of Public holding is less than the minimum required.