PSU stake sale: Sebi seeks public comments on trading halts

Pressed by the government to take steps to ensure greater success of PSU divestments, Sebi today sought public comments on halting secondary market trading in such stocks during Offer For Sales and for holding such share sales on Saturdays.

Other suggestions, which Sebi said, have been received from "various stakeholders", include reducing the mandatory notice period for OFSes to one day, from two days currently, and to restrict trading in the concerned stocks within a price band on the day prior to the share sale.

The move follows apprehensions raised by the government in the past, during some divestments through OFS route, that the secondary market price could dip below the proposed OFS price and thus hamper the share sale process.

OFS is the easiest and fastest route for sale of shares in an already-listed company and the government has also used this route for sale of its minority stakes in case of 13 PSUs so far.

The government had, however, requested Sebi to further ease the norms for OFS by way of halting secondary market trading and other steps to boost its divestment programme, under which it aims to raise Rs 41,000 crore from sale of minority shares in the current fiscal.

The public comments have been sought till April 18 on a host of suggestions, which also include providing the retail investors an option to bid at cut-off price in all OFS.

The OFS mechanism presently provides that seller may give option to retail investors to place price bid or place bid at cut-off price.

"Recent experience with OFS has shown that some retail investors bid at high prices, on the assumption that they would get allotment at cut-off price. Therefore, it is suggested to make it mandatory for sellers to provide option
to retail investors to place price bid or place bid at cut off price for better retail participation," Sebi said in its discussion paper.

Sebi has presented both 'for' and 'against' views on all the suggestions, while inviting public comments.

On suggestion for trading halt, Sebi said that "opponents argue that halts are unnecessary barriers to price discovery and do not actually reduce volatility in trading following the lifting of the halt.

"For example, if fundamental information arrives at the time of the trading halt, the price adjustment process is delayed. This may in turn increase price uncertainty because no information is transmitted through trading when there is a halt.

"In addition, by preventing investors from trading during a halt, investors may not be able to liquidate their position, if so required by them for sale of shares using OFS through stock exchange mechanism."

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