Stock Exchanges told to ensure security deposit compliance

MUMBAI: Capital market regulator the Securities and Exchange Board of India (SEBI) has directed stock exchanges to ensure that companies comply with Clause 42 of the listing agreement that calls for maintaining 1% security deposit with bourses. Clause 42 requires every company to deposit 1% of the amount of money raised with the designated stock exchanges. 

While 50% of the security deposits can be paid in cash, the balance amount can be provided by way of a bank guarantee. According to a SEBI release, bank guarantees, in many cases, have expired and the exchanges have neither taken any step to prevent such eventuality nor to revive the bank guarantees so expired. 

“By allowing such bank guarantees to expire, the stock exchanges have compromised with an important mechanism available for redressal of investor grievances,” the SEBI release said. 

The market regulator has directed exchanges to “recoup immediately any shortfall in the deposit that has been caused due to the expiry of such bank guarantees by taking either cash or fresh/revalidated bank guarantees from the concerned issuer companies.” 

The regulator also wants the bourses to “put in place a system to keep track of the bank guarantees furnished to it by the issuer companies”. Further, some stock exchanges had sought advice as to whether they can adjust the 1% security deposit against the dues payable to them by issuer companies. 

SEBI has clarified that exchanges have to maintain the said 1% security deposit at all times and no adjustment against any dues of the company can be permitted. According to SEBI guidelines, the security deposit can be released by the concerned stock exchange only after obtaining an ‘NOC’ from the market regulator.

Source : Economic Times