Stock exchanges will have to take action against promoters of non-complaint companies before suspending their share trading as per the new guidelines from the market regulator

Market regulator Securities and Exchange Board of India (SEBI) has asked stock exchanges to take action against promoters of companies that fail to comply with norms  before suspending share trading in such scrips. SEBI has prescribed standard operating procedure (SOP) for suspension and revocation of trading of shares of listed entities, moving securities to Z category and imposition of monetary penalties.
 

SEBI said that, “For non-compliance of listing conditions, exchanges have been suspending the trading of the shares of the listed companies, which affected the interest of non-promoters much more than the promoters as the exit route used to be closed for such investors after suspension of trading. Therefore, the exchanges are required to disclose it to others on its website about the action taken against the listed entities for non-compliance of the listing conditions, including details of respective requirement, period of suspension, and amount of fine, freezing of shares.” 
 

In addition, SEBI has prescribed fines on a daily basis on companies for non-compliance or shifting scrips trade-to-trade category. It said, “If any listing member fails to submit annual report for two consecutive financial years, shareholding pattern, financial results, corporate governance compliance report, information on the reconciliation of shares and capital audit report, for two consecutive quarters than it will be result into suspension of trading and listing member will be  liable to pay penalties ranging from Rs1,000 to Rs1 crore depending on the violation of certain clauses of the listing agreement”
 

 Here are the highlights of the SEBI circular,

• • Imposition of fines (on per day basis) on the company for non compliance and delay in compliance with continuous Listing condition such as submission of shareholding pattern, financial results, corporate governance report, etc.

• • In case of non compliance for two consecutive quarters, moving the shares of non-compliant company to "Z" Category, where the trades would settled on Trade for Trade basis.

• • In case non-compliance continues, freezing the shares of the promoter and promoter group. This would be carried out before suspension of the trading of shares of the company.

• • In order to provide exit window for the non-promoters, after 15 days of suspension, trading in the shares of non-compliant entity will be available on the "Trade for Trade" basis, on the first trading day of every week for 6 months.
   

SEBI has also said continuation of non-compliance should result in freezing of promoter holding. The regulator has also asked exchanges to provide for an 'exit window' to public shareholders in non-complaint companies.
 

Stock exchanges suspend trading in companies that fail to comply with the listing agreement, that includes making proper disclosures, financial result announcement, among other things.
 

At present, there are over 1,000 companies whose shares have been suspended by bourses for non compliance. Investor protection groups have even filed public interest litigations (PILs) against stock exchanges and SEBI stating that investor wealth is being locked up due to suspension of trading in companies.