SEBI Scraps 1% Mandatory Security Deposit For Public Issues

Previously, in the month of February, SEBI released a consultation paper proposing the removal of the 1 per cent security deposit requirement for public or rights issues

Market regulator the Securities and Exchange Board of India (SEBI) announced on Thursday that the mandatory security deposit requirement for companies launching public issues will be removed, aiming to ease the process for issuers. The decision, outlined in a circular by the market watchdog, takes effect immediately.

Previously, companies intending to issue equity shares to the public were required to deposit an amount equal to 1 per cent of the issue size with the stock exchanges. This deposit was refunded after the public offering was completed.

"In order to facilitate ease of doing business to issuer company, the requirement to deposit 1 per cent of the issue size available for subscription to the public with the designated stock exchange by the issuer company under... SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations) has been dispensed with," SEBI said in the circular.

Previously, in the month of February, SEBI released a consultation paper proposing the removal of the 1 per cent security deposit requirement for public or rights issues.

The regulator explained the reasoning behind this change. The original requirement for a 1 per cent security deposit was introduced to ensure that issuers could address investor complaints related to public or rights issues, such as issues with the refund of application money, allotment of securities, and dispatch of certificates.

However, SEBI pointed out that, given the series of reforms implemented in recent years and the current framework for public and rights issues, the concerns that initially justified the security deposit no longer hold. With systems like the ASBA (Application Supported by Blocked Amount) method, UPI-based payment modes, and mandatory dematerialised allotments, issues like delayed refunds, non-dispatch of physical certificates, or other post-issue investor complaints have been effectively mitigated, making the security deposit unnecessary.