- SEBI has eliminated the 1% security deposit requirement for public issues.
- The deposit was initially meant to address post-issue investor grievances.
- Modern systems like ASBA, UPI payments, and dematerialized allotments now cover these concerns.
- The change reduces costs and streamlines operations for issuing companies
The Securities and Exchange Board of India (SEBI) has scrapped the mandatory 1% security deposit requirement for public issues. This decision, effective immediately, aims to simplify business processes and enhance ease of operations for companies planning to raise funds through public equity.
What Was the 1% Security Deposit Rule?
Previously, companies planning to issue equity to the public were required to deposit 1% of the total issue size with the designated stock exchange. This deposit served as a security measure to address investor grievances post-issue, such as:
- Refund processing for unsuccessful applications.
- Share allocation discrepancies.
- Distribution of physical share certificates.
The deposit was refunded to the issuer once these obligations were resolved.
Why Has SEBI Scrapped This Rule?
The deposit requirement, introduced as a precautionary measure, has become redundant due to advancements in the regulatory framework:
- ASBA (Application Supported by Blocked Amount): This system ensures that investors’ funds remain in their accounts until the shares are allotted. It reduces refund-related concerns by blocking the subscription amount rather than transferring it upfront.
- UPI-based Payment Systems: these systems make the payment process seamless, faster, and more secure for retail investors, eliminating payment delays and transactional errors.
- Mandatory Dematerialized Share Allotments: Shares are directly credited to investors’ demat accounts, eliminating physical share certificates. This change resolves issues like delivery delays, distribution errors, or lost certificates, making the process smoother and more transparent.
SEBI highlighted that these reforms have significantly minimized the risk of post-issue grievances, making the deposit unnecessary.
Impact of the Change
| Stakeholder | Implications |
|---|---|
| Issuer Companies | Reduced administrative and financial burden during the public issue process. |
| Investors | Continued assurance of secure processes via modern mechanisms like ASBA and UPI. |
| Stock Exchanges | Simplified procedures for handling public issue funds. |
SEBI’s Vision for Streamlined Public Issues
The removal of the 1% deposit rule reflects SEBI’s commitment to promoting ease of doing business while ensuring robust investor protection. The regulator continues to refine public issue regulations, balancing issuer convenience with investor security.
