The Securities and Exchange Board of India (SEBI) by a circular no CIR/MRD/DP/ 04 /2013 dated 25th January 2013 and CIR/MRD/DP/ 18 /2012 dated 18 July 2012, has permitted the Stock Exchanges to provide a separate window, i.e. apart from the existing trading system for the normal market segment, to facilitate Promoters of listed companies to dilute/offload their holding in listed companies in a transparent manner with wider participation. Further, SEBI vide its circular dated CIR/MRD/DP/ 24 /2014 has expanded the framework of Offer for Sale (OFS) of shares through stock exchange mechanism as follows:
The facility of offer for sale of shares shall be available on BSE Ltd (BSE) and National Stock Exchange (NSE).
i. All promoter(s)/ promoter group entities of such companies that are eligible for trading and are required to increase public shareholding to meet the minimum public shareholding requirements in terms Rule 19(2)(b) and 19A of Securities Contracts (Regulation) Rules, 1957 (SCRR), read with clause 40A (ii) (c) of Listing Agreement.
ii. Any non-promoter shareholder of eligible companies holding at least 10% of share capital may also offer shares through the OFS mechanism.
iii. In case a non-promoter shareholder offers shares through the OFS mechanism, promoters/ promoter group entities of such companies may participate in the OFS to purchase shares subject to compliance with applicable provisions of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 and SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
iv. All promoters/promoter group entities of top 200 companies by market capitalisation
in any of the last four completed quarters, market capitalisation being calculated as average market capitalisation in a quarter. For (i) and (ii) above, the promoter/promoter group entities should not have purchased and/or sold the shares of the company in the 12 weeks period prior to the offer and they should undertake not to purchase and/or sell shares of the company in the 12 weeks period after the offer. However, within the cooling off period of +12 weeks, the promoter(s)/promoter group entities can offer their shares only through OFS/ Institutional Placement Programme (IPP) with a gap of 2 weeks between successive offers. The above shall also be applicable on promoter(s) /promoter group entities who have already offered their shares through OFS/IPP.
i. All investors registered with the brokers of the aforementioned stock exchanges other than the promoter(s)/ promoter group entities.
ii. In case a non-promoter shareholder offers shares through the OFS mechanism, promoters/ promoter group entities of such companies may participate in the OFS to purchase shares subject to compliance with applicable provisions of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 and SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
a) "Single Clearing Price" is the price at which the shares are allocated to the successful bidders in a proportionate basis methodology.
b) "Multiple Clearing Prices" are the prices at which the shares are allocated to the successful bidders in a price priority methodology.
c) Indicative Price is the volume weighted average price of all the valid bids.
d) "Floor Price" is the minimum price at which the seller intends to sell the shares.
3. Size of Offer for sale of shares
The size of the offer shall be a minimum of Rs. 25 crores. However, size of offer can be less than Rs. 25 crores so as to achieve minimum public shareholding in a single tranche.
4. Advertisement and offer expenses
a) Advertisements about the offer for sale of shares through stock exchange(s) , if any, shall be made after the announcement/ notice of the offer for sale of shares to the stock exchanges in accordance with para 5 (b) below and its contents shall be restricted to the contents of the notice as given to the stock exchange under Para 5 (b).
b) All expenses relating to offer for sale of shares through stock exchange(s) shall be borne by the seller(s).
5. Operational Requirements
(a) Appointment of Broker
The Seller(s) will appoint broker(s) for this purpose. The Seller's broker(s) may also undertake transactions on behalf of eligible buyers.
(b) Contents of the announcement/ Notice of the Offer for sale of shares
Seller(s) shall announce the intention of sale of shares at least one clear trading day prior (on T-2 day, T being the day of OFS issue) to the opening of offer latest by 5 pm, along with the following information:
i. Name of the Seller(s) i.e. Promoters/Promoter group entities/ Non-Promoter shareholder and the name of the company whose shares are proposed to be sold.
ii. Name of the Exchange(s) where the orders shall be placed. In case orders are to be placed on both BSE and NSE, one of them shall be declared as the Designated Stock Exchange ("DSE").
iii. Date and time of the opening and closing of the offer.
iv. Allocation methodology i.e. either on a price priority (multiple clearing prices) basis or on a proportionate basis at a single clearing price..
v. Number of shares being offered for sale.
vi. The maximum number of shares that the seller may choose to sell over and above the offer made at point (v) above. The name of the broker(s) on behalf of the seller(s).
vii. The date and time of the declaration of floor price, if the seller(s) chooses to announce it to the market. Alternatively, a declaration to the effect that the floor price will be submitted to the DSE in a sealed envelope that shall be disclosed post closure of the offer.
viii. Conditions, if any, for withdrawal or cancellation of the offer.
(c) Floor price
i. In case the seller chooses to disclose the floor price, the seller(s) shall declare it after the close of trading hours and before the close of business hours of the exchanges on T-1 day else the seller(s) shall give the floor price in a sealed envelope to DSE before the opening of the offer. (T day being the day of the offer for sale).
ii. The floor price if not declared to the market, shall not be disclosed to anybody, including the selling broker(s). Sealed envelope shall be opened by the DSE after the closure of the offer for sale and the floor price suitably disseminated to the market.
i. The duration of the offer for sale shall be as per the trading hours of the secondary market and shall not exceed one trading day.
ii. Orders shall be placed during trading hours.
(e) Order Placement
i. A separate window for the purpose of sale of shares through OFS shall be created.
ii. The following orders shall be valid in the OFS window:
1. Every bid/order for an Institutional Investor should be backed by 100% (Upfront) Cash Margin of the bid amount or 0% Margin (No Margin).
2. Every bid/order for a Retail Investor (RI) and Non Institutional Investor (NII) should be backed by 100% (Full) Cash Margin.
a. Minimum 10% of the offer size shall be reserved for Retail Investors. For this purpose, Retail Investor shall mean an individual investor who places bids for shares of total value of not more than Rs. 2 lakhs aggregated across the exchanges. If the cumulative bid value across exchanges exceeds Rs.2 lakhs in the retail category, such bids shall be rejected.
b. Individual retail investors shall have the option to bid in the Retail Category (RI) and the general category i.e Non Institutional Investor (NII). However, if the cumulative bid value of such investors exceeds Rs.2 lakhs, the bids in the retail category shall become ineligible.
3. Every order/ bid placed for 100% (Upfront) Cash Margin shall be validated against the cash deposit in OFS segment.
iii. Cumulative bid quantity shall be made available online to the market throughout the trading session at specific intervals in respect of orders with 100% upfront margin and separately in respect of orders placed without any upfront margin. Indicative price shall be disclosed to market throughout the trading session. The indicative price shall be calculated based on all valid bids/orders.
iv. If the security has a price band in the normal segment, the same shall not apply for the orders placed in the offer for sale. Stock specific tick size as per the extant practice in normal trading session shall be made applicable for this window.
v. In case of shares under offer for sale, the trading in the normal market shall also continue. However, in case of market closure due to the incidence of breach of 'Market wide index based circuit filter', the offer for sale shall also be halted.
vi. Only limit orders/ bids shall be permitted.
vii. Multiple orders from a single buyer shall be permitted.
viii. In case floor price is disclosed, orders/ bids below floor price shall not be accepted.
6. Risk Management
i. Clearing Corporation shall collect 100% margin in cash from non-institutional investors. In case of institutional investors who place orders/bids with 100% of margin upfront, custodian confirmation shall be within trading hours. In case of institutional investors who place orders without upfront margin, custodian confirmation shall be as per the existing rules for secondary market transactions. The funds collected shall neither be utilized against any other obligation of the trading member nor co-mingled with other segments.
ii. In case of order/bid modification or cancellation, such funds shall be released/ collected on a real time basis by clearing corporation.
iii. The seller(s) shall deposit the entire quantity of shares offered for sale including the additional shares disclosed at Para 5(b)(vi) as pay-in with the clearing corporation/clearing house of DSE prior to the commencement of the offer. No other margin shall be charged on the seller(s).
I. Minimum of 25% of the shares offered shall be reserved for mutual funds and insurance companies, subject to allocation methodology. Any unsubscribed portion thereof shall be available to the other bidders.
II. The orders shall be cumulated by the DSE immediately on close of the offer. Based on the methodology for allocation to be followed as disclosed in the notice, the DSE shall draw up the allocation. i.e. either on a price priority (multiple prices) basis or on a proportionate basis at a single clearing price.
III. No allocation will be made in case of order/ bid is below floor price.
IV. No single bidder other than mutual funds and insurance companies shall be allocated more than 25% of the size of offer for sale.
V. The allocation details shall be shared by the DSE with the other exchange after the allocation is crystallized.
VI. Minimum 10% of the offer size shall be reserved for retail investors.
8. (i) Settlement
a. The allocation and the obligations resulting thereof shall be intimated to the brokers on T day.
b. Settlement shall take place on trade for trade basis. For non-institutional orders/bids and for institutional orders with 100% margin, settlement shall take place on T+1 day. In case of orders/bids of institutional investors with no margin, settlement shall be as per the existing rules for secondary market.
c. Funds collected from the bidders who have not been allocated shares shall be released after the download of the obligation.
d. On T+1 day, to the extent of obligation determined, the clearing Corporation/ Clearing house of DSE shall transfer such number of shares to the clearing corporation/clearing house of the other stock exchange, without consideration of money. Excess shares, if any, shall be returned to seller broker(s).The direct credit of shares shall be given to the demat account of the successful bidder provided such manner of credit is indicated by the broker/bidder.
(ii) Handling of default in pay-in
a. In case of default in pay-in by any investor, 10% of the order value shall be charged as penalty from the investor and collected from the broker. This amount shall be credited to the Investor Protection Fund of the stock exchange.
b. The price at which allotments have been made based on the allocation on T day shall not be revised as a result of any default in pay-in.
c. Issuer shall have the option to cancel in full or conclude the offer.
d. Allotment details after settlement shall also be disseminated by the exchange.
e. Allocation details after settlement shall be consolidated by the DSE and excess shares, if any, shall be returned by the respective Clearing Corporation/ Clearing house to the seller(s) broker(s).
f. Settlement Guarantee Fund shall not be available for OFS through stock exchange mechanism.
9. Issuance of Contract Notes
The brokers shall be required to issue contracts note to its clients based on the allotment price and quantity in terms of conditions specified by the exchange.
10. Withdrawal of offer
The offer for sale may be withdrawn prior to its proposed opening. In such a case there will be a cooling off period of 10 trading days from the date of withdrawal before an offer is made once again. The stock exchange(s) shall suitably disseminate details of such withdrawal.
11. Cancellation of offer
Cancellation of offer shall not be permitted during the bidding period. If the seller(s) fails to get sufficient demand at or above the floor price, he may choose to either conclude the offer or cancel it in full. The seller may also choose to conclude the offer or cancel it in full, in case of defaults in settlement obligation.