Explained: SEBI eases lock-in rules, simplifies IPO disclosures for investors

Capital markets regulator Securities and Exchange Board of India (SEBI), in its 212th meeting held in Mumbai on Wednesday, approved amendments to SEBI (ICDR) Regulations, 2018 to rationalise certain requirements relating to initial public offerings to enhance ease of doing business and increase participation of retail investors.

As per the current rules, the entire pre-issue capital held by persons other than the promoters, except equity shares held by certain specified categories of shareholders, is needed to be locked in for a period of six months from the IPO allotment date. The market regulator said that certain issuers face challenges in complying with such lock-in requirements, especially in cases where pledges have been created by non-promoters before the IPO.

"In this regard, the Board has approved amendment to ICDR to prescribe that in case lock-in of the specified securities cannot be created, the depositories shall record such securities as “non-transferable” for the duration of the applicable lock-in period. The depositories through their system shall ensure that, subsequent to the invocation or release of pledge, the shares in the account of the beneficiary (pledger or pledgee) shall automatically be locked-in for the balance period, as required under the ICDR Regulations," SEBI said.

SEBI approves draft abridged prospectus

The regulatory body also approved an early-stage abridged prospectus at the draft red herring prospectus (DRHP) stage to encourage participation by retail investors.

As per the existing provisions, all details related to the IPO are disclosed in the DRHP and RHP. The key disclosures related to the IPO are dispersed across multiple sections.

"In order to increase the engagement and participation of the retail investors in the IPO process, the Board has approved that a focused, concise and standardized summary of offer documents in the form of draft abridged prospectus shall be available at the DRHP stage as well, in addition to the current requirement of filing of abridged prospectus at the RHP stage. Board has also approved the proposal to rationalise the disclosures in the abridged prospectus. The abridged prospectus shall be hosted on the websites as required under these regulations. With the availability of abridged prospectus, the requirement to prepare an offer document summary may be dispensed with in consultation with the Central Government," SEBI said.

The market regulator expects these amendments to streamline fundraising requirements and enhance ease of doing business.

"Further, the rationalisation of information in the abridged prospectus and also making it available with the DRHP is expected to enhance investor comprehension, improve information accessibility and thereby increasing the engagement and participation of retail investors in the IPO process," it said.