Listing means the admission of securities of a company to trading on a stock exchange. Listing is not compulsory under the Companies Act. It becomes necessary when a public limited company desires to issue shares or debentures to the public. When securities are listed in a stock exchange, the company has to comply with the requirements of the exchange.
Objectives of Listing
The major objectives of listing are
- To provide ready marketability and liquidity of a company’s securities.
- To provide free negotiability to stocks.
- To protect shareholders and investors interests.
- To provide a mechanism for effective control and supervision of trading.
A company which desires to list its shares in a stock exchange has to comply with the following requirements:
- Permission for listing should have been provided for in the Memorandum of Association and Articles of Association.
- The company should have issued for public subscription at least the minimum prescribed percentage of its share capital (49 percent).
- The prospectus should contain necessary information with regard to the opening of subscription list, receipt of share application etc.
- Allotment of shares should be done in a fair and reasonable manner. In case of over subscription, the basis of allotment should be decided by the company in consultation with the recognized stock exchange where the shares are proposed to be listed.
- The company must enter into a listing agreement with the stock exchange. The listing agreement contains the terms and conditions of listing. It also contains the disclosures that have to be made by the company on a continuous basis.
Minimum Public Offer
A company which desires to list its securities in a stock exchange, should offer at least sixty percent of its issued capital for public subscription. Out of this sixty percent, a maximum of eleven percent in the aggregate may be reserved for the Central government, State government, their investment agencies and public financial institutions.
The public offer should be made through a prospectus and through newspaper advertisements. The promoters might choose to take up the remaining forty percent for themselves, or allot a part of it to their associates.
Allotment of shares should be made in a fair and transparent manner. In case of over subscription, allotment should be made in an equitable manner in consultation with the stock exchange where the shares are proposed to be listed.
In case, the company proposes to list its shares in more than one exchange, the basis of allotment should be decided in consultation with the stock exchange which is located in the place in which the company’s registered office is located.
The following are the steps to be followed in listing of a company’s securities in a stock exchange:
- The promoters should first decide on the stock exchange or exchanges where they want the shares to be listed.
- They should contact the authorities to the respective stock exchange/ exchanges where they propose to list.
- They should discuss with the stock exchange authorities the requirements and eligibility for listing.
- The proposed Memorandum of Association, Articles of Association and Prospectus should be submitted for necessary examination to the stock exchange authorities
- The company then finalizes the Memorandum, Articles and Prospectus
- Securities are issued and allotted.
- The company enters into a listing agreement by paying the prescribed fees and submitting the necessary documents and particulars.
- Shares are then and are available for trading.
Listing of Securities in Secondary Market:
A company seeking listing satisfies the exchange that at least 10 percent of the securities, subject to a minimum of 20 lakh securities, were offered to the public for subscription, the size of the net offer to the public (i.e., the offer price multiplied by the number of securities offered to the public, excluding reservations, firm allotment and promoters’ contribution) was not less than Rs. 100 crore and the issue is made only through book building method with allocation of 60% of the issue size to the qualified institutional buyers.
Otherwise, it is required to offer at least 25% of the securities to the public. The company is also required to maintain the minimum level of non-promoter holding on a continuous basis.
Before making an application for listing to any stock exchange, a corporate body, Mutual Fund or Collective Investment Scheme, is required to obtain a letter of recommendation for listing from the Central Listing Authority. The basic norms for listing of securities on stock exchanges are uniform for all exchanges.
These norms are specified in the listing agreement entered between the company and the exchange concerned. The listing agreement prescribes a number of requirements to be continuously complied with by the issuers for continued listing and such compliance is monitored by the exchanges.
It also stipulates the disclosures to be made by the companies and the corporate governance practices to be followed by them. SEBI has been issuing guidelines/circulars prescribing certain norms to be included in the listing agreement and to be complied with by the companies.
A listed security is available for trading on the exchange. 9,359 securities were listed on exchanges at the end of March 2004. A security listed on other exchanges is also permitted for trading. The stock exchanges levy listing fees i.e., initial fees and annual fees from the listed companies.
It had been a major source of income for many exchanges till recently. With the withdrawal of requirement of listing on regional exchanges, liberalisation of delisting, and virtually no trades on exchanges, no new company is seeking listing on regional exchanges and the existing companies too are getting delisted.