With the onset of major activities in the start-up ecosystem and BSE Limited and the National Stock Exchange Limited announcing their new divisions to cater to new-age companies, SEBI prepared its consultation paper on ‘Review of framework for Institutional Trading Platform’ dated October 26, 2018 to invite proposals from the market participants to put in place a new set of guidelines for listing start-ups in India. Pursuant to the discussions on the consultation paper and in-principle approval provided in its board meeting dated March 1, 2019, SEBI on April 5, 2019 amended the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“SEBI ICDR”) to put together the revised framework on the Innovators Growth Platform, earlier known as the Institutional Trading Platform.

The amendments to the SEBI ICDR targets two set of changes, firstly with respect to the existing regulations in the SEBI ICDR such as (i) reduction in the minimum application size, (ii) compliance with the minimum public shareholding, and (iii) minimum number of allottees to be 50. Further, the amendment has omitted the provisions with respect to allotment being on a proportionate basis and prescribed the minimum offer size to be ten crore rupees. Secondly, in order to bring the existing framework in line with the global market standards, SEBI has introduced the concept of ‘accredited investors’. The concept of ‘accredited investors’ under U.S. securities laws predominantly caters to financially sophisticated investors, to whom companies and private funds engaging in certain exempt offerings, do not have to make the prescribed disclosures. The U.S. securities laws, further prescribe certain flexibility in the disclosure requirements for issuers engaging in exempt offerings and provides that the issuer shall furnish information to the extent material to understanding of the issuer, its business and the securities being offered. SEBI appears to have attempted the same by recognizing those: (i) individuals with total gross income of fifty lakh rupees annually and who have minimum liquid net worth of five crore rupees; or (ii) body corporates with net worth of twenty five crore rupees. The intention of SEBI with respect to introduction of the said concept is to encourage those investors which do not fall within the definition of qualified institutional buyers but are equally financially competent to invest in companies. SEBI has not made any amendments to the existing disclosure requirements in the offer documents.

While this is a welcome development in the financial markets, market participants are keen to see the impact brought in by the changes to the previous framework which are intended to help the regulator attract more start-ups, while ensuring that the regulatory requirements act as an umbrella to provide comfort to the investors against the risks involved in such investments.

Author:

Aditi Verma, Associate