Framework for Price Discovery of Investment Companies

Context

Markets regulator SEBI has recently proposed to lay a framework for price discovery of shares of listed investment companies (ICs) and listed investment holding companies (IHCs) whose market price is at significant discount to their book value.

Key Highlights

• The script should have been listed and to be available for buying and selling as a minimum for a period of one year and the corporation need to have been compliant with all of the LODR Regulations together with submission of audited monetary results.
  • LODR is Listing Obligation and Disclosure Requirement.
• Total property of the company invested in stocks of other indexed businesses might also as a minimum be 50%.
• The 6-month VWAP (quantity weighted average rate) of the security can be much less than 50% of the book cost of such organizations.
• Once the corporations are recognized, the stock exchanges shall initiate the process for special call-auction sale without price band for shares of such companies with a 7-day prior notice.

About ICs and IHCs

• ICs are businesses that earn fundamental revenue from interest, capital appreciation from investments made, and do not encompass rental income which is classed under varied commercial services.
• IHCs are holding businesses with holdings of 51% or more in other companies.
• Currently, stocks of some indexed ICs or IHCs are getting traded on occasion however at a price that’s substantially lower than the book value disclosed by the listed entities in their last audited financial statements.

What are the Securities and Exchange Board of India’s (SEBI) Draft Norms?

• In the draft norms, SEBI stated a special call-auction mechanism without price band may be enabled for listed ICs and IHCs, whose stocks are trading past a positive discount to their book value.
• For this, stock exchanges will coordinate among themselves and offer the special call-auction mechanism for such corporations.
• The concept of price bands had been put in place as a hazard control and surveillance level for making sure orderly trading, suitable charge discovery and selling marketplace integrity.
• SEBI additionally recommended certain criteria for identification of ICs and IHCs eligible for special call auction.

Source: Indian Express

UPSC Mains Practice Question

Q.Discuss the challenges and solutions pertaining to the Mutual Funds market In India.

Download as PDF