Listing of Securities:
Listing of securities means that the securities are admitted for trading
on a recognized stock exchange. Transactions in the securities of any
company cannot be conducted on stock exchanges unless they are listed
by them. Hence, listing is the very basis of stock exchange operations.
It is the green signal given to selected securities to get the trading
privileges of the stock exchange concerned.
Securities become eligible for trading only through listing.Listing
is compulsory for those companies which intend to offer shares/debentures
to the public for subscription by means of issuing a prospectus. Moreover,
the security of exchange insists on listing for granting permission to
a new issue by a public limited company. Again, financial institutions
do insist on listing for underwriting new issues. Thus, listing becomes
an unavoidable one today.The companies which have got their shares/debentures
listed in one or more recognized stock exchanges must submit themselves
to the various regulatory measures of the stock exchange concerned as
well as the security exchange. They must maintain necessary books, documents
and disclose any information which the stock exchange may call for.
Advantages of Listing:
The advantages of listing may be summarized as follows:
i. Facilitates buying and selling securities: Listing paves way for
easy buying and selling of securities. Constant marketing facilities are
assured for listed securities.
ii. Ensures liquidity: The prices of listed securities are quoted daily
in the market. Hence, securities can be converted into cash readily at
quoted prices and thus listing ensures liquidity.
iii. Offers wide publicity: Listed securities give wide publicity to
the companies concerned. It is so because the names of listed companies
are frequently mentioned in stock market reports, television, newspapers,
and radio. This has an advertising effect for such companies and this
will automatically widen the market for their securities.
iv. Assures finance: The very fact that a security is listed in a recognized
stock exchange adds to the prestige of that company and it enables the
company to raise the necessary finance by the issue of such securities
expeditiously.
v. Enables borrowing: Listed securities are preferred as collateral securities
by commercial banks and other lending institutions because they are rated
high in market quotations and there is a ready market for them also. Thus
borrowings are made easier against the securities of the listed companies.
vi. Protects investors: Listing companies have to necessarily submit
themselves to the various regulatory measures by disclosing vital informations
about their assets, capital structure, profits, dividend policy, allotment
procedure, bonuses. Hence, listing aims at protecting the interest of
investors to a greater extent.
Drawbacksat:
The same time, listing brings some bad effects also. The disadvantages
of listing are as follows:
i. Leads to speculation: Listed securities offer wide scope for the speculators
to manipulate the values in such a way as may be detrimental to the interests
of the company. In such a situation, artificial forces play a more dominant
role than the free market forces. The stock market may not reflect the
true picture of a listed security. Again, the managerial personnel may
themselves indulge in speculative activities with regard to listed securities
by misusing the inside information available to them.
ii. Degrades companys reputation: Some times listed securities are subject
to wide fluctuations in the values. They may become a victim of depression.
They are immediately reflected on the stock exchange where were unlisted
securities escaped from this misery. These wide fluctuations in their
values have the effect of degrading the companys reputation and image
in the eyes of the public as well as the financial intermediaries.
iii. Discloses vital informations to competitors for getting the securities
listed, a company has to disclose vital informations such as, dividends
and bonuses declared, a brief history of the company, sales, remuneration
to managerial personnel and so on. It amounts to leaking of secrecy of
the companys operations to trade rivals. Even trade unions may demand
higher wages and bonus on the basis of this informations. Thus, listing
may prove disadvantageous to a company.
Listing Procedure:
As stated earlier, listing enables a company to include its securities
in the official list of one or more recognized stock exchanges for the
purpose of trading. A company which requires its securities to be listed
must comply with the following formalities:
The company concerned must apply in the prescribed form along with the
following documents and details:
i. Certified copies of memorandum and articles of association, prospectus
or statement in lieu of prospectus, underwriting agreements, agreements
with vendors and promoters.
ii. Specimen copies of shares and debenture certificates, letter of call,
allotment, acceptance and renunciation.
iii. Copies of offers for sale and circulars or advertisements offering
any securities of subscription or sale during the last 5 years.iv. Copies
of balance sheets and audited accounts for the last 5 years.v. Particulars
of dividends and bonuses paid during the last 10 years.
vi. A statement showing dividends or interest in arrears if any.
vii. A brief history of the company since its incorporation, giving details
of its activities.
viii. Certified copies of agreements with managerial personnel.
ix. Particulars regarding its capital structure.
x. Particulars of shares and debentures for which permission to deal is
applied for and their issue.
xi. A statement showing the distribution of shares along with a list of
highest 10 holders of each class or kind of securities of the company
stating the number of securities held by them.
xii. Particulars of shares forfeited.
xiii. Certified copies of agreements if any with the industrial finance
corporation, ICICI.
xiv. Listing agreement with the necessary initial and annual listing fee.
Criteria for Listing:
A company which desires its securities to be listed on a recognized stock
exchange must satisfy the following conditions:
i. At least 60% of each class of securities issued must be offered to
the public for subscription.
ii. The minimum public offer for subscription must be at least 25% of
each issue and it must be offered through advertisement in newspapers
at least for a period of 2 days.
iii. The company should be of a fair size having broad based capital structure
and public interest in its securities.
iv. The company must pay interest on the excess application money received
at the rates ranging between 4% and 15% depending on the delay beyond
10 weeks from the date of closure of the subscription list.
The articles of association of the company must provide for the following:
a. A common form of transfer shall be used.
b. Fully paid shares will be completely free from lien.
c. Partly paid up shares will be subject to lien only to the extent of
call money due at a fixed time.
d. Calls in advance carry only interest and not dividend rights.
e. Unclaimed dividends shall not be forfeited before the necessary becomes
time barred.
f. The right to call of shares shall be given only after the necessary
sanction by the general body meeting.
g. Transfer of shares shall be registered within 30 days of deposit of
request and the balance certificates shall be issued within the same period.
vi. The existing companies must adhere to the ceiling in expenditure of
public issues.
vii. A certificate to the effect that shares from promoters quota are
not sold or transferred for a period of 3 years must be submitted.
Listing Obligations:
A company whose securities have been listed on a stock exchange has to
perform certain obligations also. Some of the important obligations have
been given here under:
The company has to compulsorily notify the stock exchange:
i. The date of the board meeting at which the declaration or recommendation
of dividend or the issue of right or bonus share will be considered.
ii. Any change in the companys directorate or managerial personnel by
death, resignation, removal or otherwise.
iii. Any issue of new shares, rights shares or otherwise as well as the
issue of any privileges or bonuses to members, even before they are intimated
to shareholders.
iv. Any change in the companys capital structure.
v. Any material change in the general character or nature of the companys
business.
vi. Any re-issue of forfeited securities or the issue of any other securities
held in reserve for future issue.
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