current status of the Dissemination Board
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This article is written by Shreyak Patnaik, a third-year student studying at Symbiosis Law School, Hyderabad. The article deals with the Dissemination Board of Stock exchange and the procedure for trading on it. 

Introduction

In India, there are two types of stock exchanges a public company would be listed in, and therefore, two types of stock exchanges you as an investor would be a part of. A National Stock Exchange and a Regional Stock Exchange. The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are the only two stock exchanges with nationwide operations and to be in their listings, a company has to have shares worth 10 crores to offer in the primary market (shares worth three crores if its an FPO).

But other than that, there also exist regional stock exchanges with operations of a much-limited scope. While the threshold is lower, these stock exchanges also run the risk of going non-operational. So on the occasion, a stock exchange does go non-operational or de-recognised, what happens to the companies exclusively listed in those exchanges? What happens to the shareholders of those companies? 

By a circular dated May 30th, 2012, SEBI provided the derecognised/exiting exchanges, the companies exclusively listed in those exchanges, and the shareholders of those companies with a somewhat of an exit strategy. 

And thus, the Dissemination Board was born. 

What is the Dissemination Board of stock exchange?

A perusal of any dictionary will give you the meaning of dissemination to be to spread something or give something out, especially information, and that’s exactly what the Dissemination Board does. 

On derecognition, the exiting stock exchange has an option to enter into an agreement with the national exchange (Click here to see what an agreement between the NSE and an exiting regional stock exchange looks like). By way of the agreement, the National exchange agrees to put out information regarding the shares of the company listed in the exiting stock exchange on a place called the Dissemination Board where buyers and sellers can deal in those shares. For the services of the national exchange, the regional stock exchange pays a prescribed fee mentioned in the agreement and provides the national exchange with a list of the eligible companies for the DB and the list is accordingly displayed online in the sites of the National Stock exchanges. 

The online portals for the two dissemination boards run by the two national exchanges are mentioned here: 

For Dissemination Board of the National Stock Exchange, click here

For Dissemination Board of the Bombay Stock Exchange, click here 

What does the Dissemination Board do? 

Essentially, the Dissemination Board can be considered somewhat of a demotion wherein the shares of the company who were in the derecognised Stock exchange are shifted to a different forum, outside the purview of the traditional stock exchange, for being traded. So those shares are not taken out of existence, they still exist to be purchased or sold, just on a different platform. All the information of all those companies is listed on Dissemination Board wherein the sellers and the buyers place their bids and offers, through registered trading members of the stock exchange.

The Dissemination Board is hosted in the capital market segment of the Stock exchange and is open to all registered trade members to participate in. An investor will not be able to participate in the trades of the shares on the board without a registered trade member

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Who controls the trades happening on the Dissemination Board?

While Dissemination Boards are established by the two national stock exchanges of the country, trades of shares of the companies listed on the board do not abide by the normal rules of National Stock Exchange. In fact, in the agreement between the national stock exchange and any exiting stock exchange it is explicitly mentioned that the national stock exchange will not be responsible to the regional stock exchange, the companies listed on the stock exchange nor the shareholders or prospective shareholders of such company for the settlement of those trades.

The bye-laws, rules and regulations of the capital market do not apply to trades taking place from the Dissemination Board either which has been explicitly mentioned in the agreement as well. 

How do you participate in trades happening on the Dissemination Board?

Trading in stocks listed on the Dissemination board can only be done through the registered trade members of the stock. The registered trade members of the stock exchange are the only ones who are allowed by the stock exchange to participate in the trades happening on the board and are the only ones who can put up the bids or offers made by the current shareholders and investors.

One has to approach a registered trade member of the stock exchange to be able to buy or sell shares of the companies listed on the board.

Now, not everyone with a registered trade member can place an offer or a bid though. To be able to trade in shares of the companies of the board, in addition to requiring a registered trade member, the investor or shareholder would also have to be KYC compliant. A shareholder would already be KYC compliant which is how they came in possession of those shares. But a prospective investor, who’s new to the market might not be. So, they’d have to know what a KYC is. 

KYC or Know-your-client is a procedure through which you would be furnishing your relevant details with the SEBI. Fortunately, it is not very difficult to get a KYC done these days either. 

Procedure for getting KYC done 

To get your KYC done, you’d be requiring a few documents and a form wherein you have to fill your relevant details. SEBI has provided prospective shareholders with a uniform KYC form for every kind of trade possible with the organisation. While there are a lot of other forms required to be filled for trading in other markets such as stocks or mutual funds (A topic for another article), to be able to trade in the shares of the company on the dissemination board, one only needs KYC.

So how do you get your KYC done? 

First, Fill in the form provided by SEBI. 

you can get that form by clicking here. A print out of only the first page would be required if you’re an individual investor, and a print out of only the second page would be required if you’re a non-individual investor.

Along with the form, an individual investor also has to submit the following documents:

  • Self Attested copies of their PAN Card. The name mentioned in the KYC form must also match the name mentioned in the PAN Card or additional proof will be required to prove the name on the form. The date of birth mentioned in the PAN Card must also match the date of birth mentioned in the KYC form.
  • Proof of Identity: The copy of Pan Card could also be used as POI, but a copy of Aadhar Card, Passport Card or even driving licence can be used as well. 
  • Proof of address. It can be your Voter ID card, ration card or registered lease of sale agreement of the address provided. Utility bill such as telephone bill or electricity bill can also be accepted if they are less than 3 months old at the date of furnishing. Even a bank statement, less than 3 months old, wherein the address is mentioned can be considered to be proof of address.

If the correspondence and permanent address are different, proof of address for both must be furnished by the investor.

Second, carry the originals with you and approach your trader for verification. If you cannot produce the originals then you would have to attest the photocopies by authorities authorized to attest those documents. Those authorities are:

  • Notary Public
  • Gazetted Officer, 
  • Manager of a Scheduled Commercial/ Co-operative Bank or Multinational Foreign Banks (Name, Designation & Seal should be affixed on the copy).

In case of NRI’s, the following authorities are allowed to attest the photocopies:

  • Authorized officials of overseas branches of Scheduled Commercial Banks registered in India, 
  • Notary Public, 
  • Court Magistrate, 
  • Judge, 
  • Indian Embassy /Consulate General in the country where the client resides.

If the investor is of foreign nationality then they have to specify their nationality and provide photocopies of their passport as well.

If the investor is a non-individual then the POI and POA of the director must be submitted along with additional documents depending on the type of non-individual entity applying. 

Types of entity

Documentary requirements

Corporate

  • Copy of the balance sheets for the last 2 financial years (to be submitted every year).
  • Copy of latest shareholding pattern including the list of all those holding control, either directly or indirectly, in the company in terms of SEBI takeover Regulations, duly certified by the company secretary/Whole-time Director/MD (to be submitted every year).
  • Photograph, POI, POA, PAN and DIN numbers of whole-time directors/two directors in charge of day to day operations.
  • Photograph, POI, POA, PAN of individual promoters holding control – either directly or indirectly.
  • Copies of the Memorandum and Articles of Association and certificate of incorporation.
  • Copy of the Board Resolution for investment in securities.

Partnership firm

  • Copy of the balance sheets for the last 2 financial years (to be submitted every year). Certificate of registration (for registered partnership firms only).
  • Copy of partnership deed.
  • Authorised signatories list with specimen signatures.
  • Photograph, POI, POA, PAN of Partners.

Trust

  • Copy of the balance sheets for the last 2 financial years (to be submitted every year). Certificate of registration (for registered trust only).
  • Copy of Trust deed.
  • List of trustees certified by managing trustees/CA.
  • Photograph, POI, POA, PAN of Trustees.

HUF

  • PAN of HUF.
  • Deed of declaration of HUF/ List of coparceners.
  • Bank pass-book/bank statement in the name of HUF.
  • Photograph, POI, POA, PAN of Karta.

Unincorporated association or a body of individuals

  • Proof of Existence/Constitution document.
  • Resolution of the managing body & Power of Attorney granted to transact business on its behalf.
  • Authorized signatories list with specimen signatures.

Banks/Institutional Investors

  • Copy of the constitution/registration or annual report/balance sheet for the last 2 financial years.
  • Authorized signatories list with specimen signatures.

Foreign Institutional Investors (FII)

  • Copy of SEBI registration certificate.
  • Authorized signatories list with specimen signatures.

Army/ Government Bodies

  • Self-certification on letterhead.
  • Authorized signatories list with specimen signatures.

Registered Society

  • Copy of Registration Certificate under Societies Registration Act.
  • List of Managing Committee members.
  • Committee resolution for persons authorised to act as authorised signatories with specimen signatures.
  • A true copy of Society Rules and Bye-Laws certified by the Chairman/Secretary.

After verification, your side of the job is done, the trader will send all the information to the agency. Once confirmed you shall be able to trade through your registered trading member.

Once the documents are submitted, you can track your KYC application status on the portal of the KYC registration agency. All you’d require to track your status would be your PAN number. You can check your application status here

A good thing about the KRA is also that KYC, once done, wouldn’t have to be redone if you change your trader. Once KYC is done you are all set to trade on the Dissemination Board! 

What’s the current status of the Dissemination Board

One of the biggest problems plaguing trades in the dissemination board is the refusal of the stock exchange to be involved in the trades taking place on that forum. Not only does the stock exchange not involve itself in the settlement of trades from the board, but also the traders, who are necessary for an investor and seller to bid and offer on the board, are not legally bound to see the settlement of the trade through. Trading of shares of the company listed in DB are transactions between the seller and the buyer and are beyond the protection of the clearing corporation of the exchange and beyond the legal duty of the trader. 

In an article published in Hindu business, it was stated that the exit strategy the exchanges devised for the companies as an option to still be listed when their exchanges become inoperational has failed as enough transactions are just not taking place. In addition to the fact that there are no binding regulations and rules governing these trades, there just isn’t enough education regarding the existence of the Dissemination Board either. According to the agreement made between the national exchange and the regional exchange, the national exchange need only release a gazette regarding the listing of the companies of the regional stock exchange in the dissemination board only once in a nationally circulated newspaper. Since the national exchange doesn’t gain anything from these trades (as is obvious from the lack of any of the capital market regulations binding on these trades) it doesn’t communicate the existence of these shares more than the legally mandated times it has to (which is just once) and then opening up portal for the information of the board which can’t be found unless the investor is specifically looking for it.

Should you care about the Dissemination Board as an investor?

One cannot deny the potential possessed by the board. The companies listed on these boards are usually sharing their shares for a much lesser price than what their face value was in the regional stock exchanges. These companies, while on the dissemination board, are not debarred from the national exchanges and can be accepted to be listed in the stocks the moment they achieve the minimum requirements. It was reported by the mint, that the SEBI has provided a sort of exit to the companies to raise the capital to be listed in the national exchanges. They were allowed to raise capital through preferential allotment and qualified institutional placement. 2000 firms were helped as a result of this move. So any of the shareholders who would have bought shares of those companies during the time they were listed in the dissemination board would stand to gain a monumental profit the moment they are able to secure enough funding to be listed in the national exchanges. 

The dissemination board, while suffering from its shares of problems and a state of lawlessness as compared to other derivatives and equities available in the stock exchanges, can still be a lucrative space with well-thought-out investments. An investor does stand to profit from an investment in the dissemination board, all for a KYC and a trader who’ll put up their bid/offer on the board. 


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