SEBI begins preparations to tighten IPO rules for companies

Keeping in mind the interests of the investors, SEBI has proposed to tighten the rules for the companies bringing IPO so that the investors can easily get better information about the company and the issue and they can take an informed decision about the issue.

As per SEBI's proposal, companies to be listed on the main board will also have to provide IPO-related disclosures in audio-visual format. SEBI has sought public opinion on this. This opinion can be given till April 9.

What is SEBI's proposal?

According to the current rules, companies that want to be listed on the stock market have to file a draft red herring prospectus or DRHP with SEBI which contains a lot of important information about the issue and the company. Investors can make accurate investment decisions based on this information. However, SEBI now wants companies to present this information in audio visual format as well. Sebi has said that it is proposed that the disclosures given in the DRHP and RHP of the public issue will also be given in AV format.

As per the proposal this audio visual will be in English and Hindi language and will be made available to general public. This can be made in maximum 8 minutes. According to SEBI, in whatever period the audio visuals are made, material disclosures made in all sections of the public issue offer document will be given equal time. This includes risk factors, capital structure, objective of the offer, business, financial information, legal matters and any other issues affecting the company.

SEBI believes that presenting the issue in audio visual format will make it easier for common investors to understand all the important issues related to the issue and take better decisions.

What is an IPO?

IPO stands for Initial Public Offering. It is the process by which a private company becomes a publicly traded company by offering its shares to the public for the first time. A private company with a small number of shareholders who share their ownership by going public by trading their shares. By IPO, the name of the company is listed on the stock exchange.