Market regulator Securities and Exchange Board of India (SEBI) is considering a rule under which companies will have to allot bonus and split shares within a defined period of time, following a controversy involving fashion e-commerce firm Nykaa and EaseMyTrip.
The controversy involves issue of bonus shares by Nykaa to coincide with the end of lock-in period for pre-IPO investors to both defer and deter investors from exiting the stock to avoid a crash in the stock price, and another bonus issue by EaseMyTrip, which resulted in the stock crashing from Rs 382 to Rs 48 in a reaction to a 3:1 bonus issue and split in face value to Re 1 from Rs 2, Moneycontrol reported.
Companies usually allot the additional shares within 15 days from the announcement of the bonus or stock split, but it is not followed industry-wide. The stock price adjusts for the bonus/split share on the record date, which is the cut-off set by the company for deciding the shareholders eligible for the bonus issue, the report said.
However, market players say that some promoters and operators rig the stock price between the record date and the date on which the shares are allotted.
“Even if the share price surges, most investors prefer to wait till the additional shares are credited to their accounts before they take profits. That reduces the selling pressure in the system as nobody knows the date on which the shares will be credited,” an HNI trader told the publication.
SEBI regulations stipulate the time in which companies need to implement the bonus issue after the board meeting, but do not state the number of days within which the shares need to be allotted to shareholders.
“Where approval of shareholders is not required, the bonus issue should be implemented within 15 days from the date of board meeting announcing bonus issue,” the rule says.