There are presently a few competent registrars in the market organised to handle overloaded jobs. This was so when the market come to shrink to smaller size and offered no scope for such service provider. But in a growing economy special problems have to be attended and IPO Issues have to be restored to their old size in volume and amount. Sufficient number of big players in this role can therefore to be made to resume back in this field to bring quality and competition in this service.
In fact the single job of the Registrars to issue in the chain of IPO intermediaries, is the only risk-free assignment and consequently should be worry-free. The service provider here need not fail to accomplish successful job execution to the issuer due to factors external to him, since there is nothing in his job profile that should lie beyond his control. The underwriter faces the risk of devolvement of the issue on his shoulders. The broker/merchant banker or lead manager may fail to get the issue fully subscribed. But no such concern needs to deter the Registrars to issue from devoting to his job.
The job profile of the Registrar is described by SEBI as under:
Collecting applications from investors in respect of an issue;
Keeping a proper record of applications and monies received from investors or paid to the seller of the securities. and
Assisting body corporate or person or group of persons in-
determining the basis of allotment of securities in consultation with the stock exchange;
finalising of the list of persons entitled to allotment of securities;
processing and despatching allotment letters, refund orders or certificates and other related documents in respect of the issue.
All these constitute mostly back office routine excepting the single task of collecting applications from investors. The fact is that investors themselves forward the applications to the Registrars and the latter in turn has only to receive the same.
SEBI has prescribed strict code of conduct for this service provider, which if followed diligently, the Registrar will have no possibility of crossing the Lakshman Rekha. The code of conduct prescribed is stated below:
A registrar to issue and share transfer agent shall maintain high standards of integrity and fairness in all their dealings with their clients and other registrars to issue and share transfer agents in the conduct of their business.
A registrar to issue and share transfer agent shall act with due skill, diligence and care in the conduct of all their activities.
A registrar to issue and share transfer agent shall not indulge in unfair competition, which is likely to be harmful to the interests of other registrars to issue and share transfer agents or is likely to place such other registrars to issue and share transfer agents in a disadvantageous position in relation to the registrar to issue and share transfer agent, while completing for or executing any assignment.
A registrar to issue and share transfer agent shall not make any exaggerated statement, whether oral or written, to the clients either about their qualifications or capability to render certain services or their achievements in regard to services rendered to other clients.
A registrar to issue and share transfer agent shall not divulge to other clients, press or any other party any confidential information about their clients, which have come their knowledge.
A registrar to issue and share transfer agent shall endeavour to ensure that-
inquiries from investors are adequately dealt with
Adequate steps are taken for proper allotment of securities and refund of application monies without delay as per the law.
A registrar to issue and share transfer agent shall not generally and particularly in respect of any dealings in securities be party to -
creation of false market;
price rigging or manipulation;
passing of unpublished price sensitive information to brokers, members of the stock exchanges and other intermediaries in the securities market or taking any other action which is not in the interest of the investors.
no registrar to issue and share transfer agent or any of its directors, partners or manager having the management of the whole or substantially the whole of affairs of their business shall either or their respective accounts or through their associates or family members, relatives or friends indulge in any insider trading.
A registrar to issue and share transfer agent or any of his employees shall not render, directly or indirectly, any investment advice about any security in the publicly accessible media, whether real-time or non real-time unless a disclosure of his interest including long or short position in the said security has been made, while rendering such advice.
In case, an employee of the registrar to issue and share transfer agent is rendering such advice, he shall also disclose the interest of his dependent family members and the employer including their long or short position in the said security, while rendering such advice.
The real Problem faced by the Registrars to Issue
He has to maintain an extensive office infrastructure with trained employees, and quick communication infrastructure.
He will not get regular assignments. His job is linked to the opening and closure of the IPO and the handling of the post issue formalities.
When such an assignment comes, he will have a tight schedule of work with responsibility to adhere to fixed time schedules of short duration.
After the issue work is completed his office infrastructure remains idle until he is able to secure one more assignment.
Over a period when the IPO market is slack, the Registrars have to maintain idle infrastructure without remunerative work. And as IPO market is not regular and consistent, the problem faced by smaller registrars is formidable.
In the period between 1994-95 to 200l-02 the market was very sketchy and inadequate, that many of earlier players closed their shops and quit business.
As the work is seasonal with heavier load when it comes, the tendency has developed with the mid-sized players to out-source part of the work to other data entry operators. The work thus devolves on unregistered entities, who are not accountable to SEBI and the stock exchange. These sub-contractors may lack the eligibility criteria and other yardsticks applicable to Registrars as prescribed by SEBI.
As a result of the closure of business by a number of Registrars after 1994-95, when the market again revived in 2003 and several mega issues are floated, the dearth of competent Registrars operating in the field was experienced. And as an effect of this insufficient availability of the essential service provider ONGC fiasco resulted.
Other Serious Constraints
In the initial stages when the issue is open, the Registrars only collect the application and compile and communicate the progressive subscription statistics to the issuer on day to day basis. When the issue is closed the basis of allotment is to be decided. At this stage the representative of the stock exchange interacts and attends to this job along with the Registrars. In many cases when issues are grossly over-subscribed allotment is to be made on the basis of random selection, assisted by computer software in the stock exchange. All these are attended by the Registrar jointly with the representative of the Stock exchange resulting in the list of persons entitled to allotment of securities.
In fact in all these stages the load of work may not be felt, as the flooding of applications takes place at the collecting centres and only statistics reach the Registrars.
The Problem faced at the Post Allotment stage
The Registrars at this final stage have to attend to the processing and despatching allotment letters, refund orders or certificates and other related documents in respect of the issue. They are also to attend expeditiously investor grievances/complaints and to promptly attend to redress the same. It is at this stage that the office of the Registrar is flooded with bundles and bundles of records containing application forms. Allotment letters to be forwarded within 30 days of the closure of the Public Issue. That is allotment letters and refund orders are to be despatched within this date. If there are I million subscribers, the Registrar has to handle about 100000 allotment letters/refund orders per every three days. In addition to that they have to attend to each and every letter expressing complaints grievances from the subscribers.
Organised diligently and handled methodically and devotedly the job is not beyond the realm of possibility. There were number very successful Registrars. But equally true is the scope for losing the trail and landing into chaos. The temptation is to outsource a good part of the job. This is arranged in piece rate basis, where frequently quality tend to the causality, in the urge of the worker to earn more by turning work beyond the safe limit.
Suggestions for making the service of Registrars to Issue more dependable and error free
The Registrar's job involves large-scale handling of deskwork in particular at the post allotment stage. This work in turn depends on the size of the issue and the extent to which the issue is open to retail investors. The status or standard of the Registrar definitely depends on the size of the issue and the volume of work involved. The present rules/regulations of SEBI, viz.
Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Rules, 1993.
Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993.
Recognise a single category of registers in terms of eligibility norms and capital adequacy etc. This needs to be revised and there should be a maximum of three categories of registrars to handle small, large and very large issues in terms of issue amount and volume of subscribers anticipated. It is essential that in respect of registrars to handle very large issues, capital adequacy norms to be around Rs.50 Lakhs, with a security deposit of Rs.5 Lacs. Different scales of registration and renewal fees may be prescribed for the three different categories.
Present eligibility criteria prescribes that the registrar must have "the necessary infrastructure like adequate office space, equipment and man- power to effectively discharge his activities" Adequacy at least for the large and very large categories of registrars must be expressed in concrete terms.
The present eligibility criterion mentions "past experience in the activities" is a condition/qualification for grant of registration. This may be replaced by standards of qualification and participation in specific training course for Registrars arranged by NSE/BSE.
The data entry software should provide for adequate scope for data validation and checking. The software at the completion of the data entry should output the total list of subscribers with particulars.
The Interaction with the representative of the stock exchange should commenced at this stage. The rules for preparation of the final list of eligible allottees and the list of subscribers to be issued refund orders to be prepared from the total list of subscribers by the same interactive software as per criteria inputted jointly by the Registrar and the representative of the stock exchange.
The software to rolls out automatically the allotment letters/refund orders on the basis of the list of persons eligible for allotment/refund orders. These two final lists (Databases) to be prepared by the Registrar in consultation with the representative of the stock exchange, who must be also responsible for its error-free condition. These are the databases for the issue of allotment letters/refund orders and a copy of the same must be with the stock exchange. Once the final lists (databases) are approved, the system should not leave any scope for errors in the subsequent processes, that of issuing allotment letters and refund orders as these should bed automated by the software.
Sub-contracting of work can be recoursed only with permission of the stock-exchange employing persons, who are in turn approved by SEBI/Stock exchange.
The remuneration to the registrar should be based on the turn over of work, and it should be such that attracts competent persons to the fold.
Thus the Registrar for handling a small Issue of Rs.20 Crores by a public limited company and a mega issue like that of the ONGC cannot be the same. In respect of such mega issues, in fact the stock exchange should appoint a team of 3 persons to oversee the process of data entry and finalise the databases of Allottees and those to receive refund orders. Training and qualification should be essential criteria for the key persons. They should not only know what to do, but also be aware of the pitfalls of not doing things properly.
What are the challenges beforfe Indian IPO Market other than that on account of lack of dependable Registrars-to-issue? We will discuss this in the next article.
