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India’s new securities rules may trigger a boom in share offerings, but have sparked fears over the liquidity of the market. They have also prompted mixed reactions from listed companies and their legal advisers

George W Russell reports

It’s being called India’s version of the Big Bang. On the evening of Friday 4 June, after equity markets had closed, the government announced that amendments to the Securities Contracts (Regulation) Rules, 1957, will require all listed companies to have at least 25% public shareholding.

India Inc was taken by surprise and within hours furious lobbying had begun.

Under the new rules, any company listing its securities on an Indian stock exchange will be required to have a public float of at least 25%. Listed companies with a public float of less than 25% must raise their public shareholding by a minimum of 5% every year until it reaches 25%. “A dispersed shareholding structure is essential for the sustenance of a continuous market for listed securities to provide liquidity to investors and to discover fair prices,” the Finance Ministry said in a statement announcing the change.

Rationale for change

Before 1993, section 19(2)(b) of the Securities Contracts Rules required a minimum public offer of 60% of the issued capital of a company in order to be listed on a recognized stock exchange. However, the central government could waive or relax the strict enforcement of this requirement. The level was set at 25% from 1993 to encourage the listing of a large number of companies to broaden the market, but again the government could waive or relax the rule.

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