What Nykaa's Yet-To-Be Credited Bonus Shares Tell SEBI
Nykaa has brought to the fore a key area where SEBI and exchanges are way behind in using tech to protect investor interest.
FSN E-Commerce Ventures Ltd., the parent of online retailer Nykaa, has brought to the fore a key area where the market regulator and exchanges are way behind in using technology to protect shareholder interest.
Nykaa's parent announced a bonus issue of 5 shares for every one held. In other words, a shareholder would have 6 shares of Nykaa in their demat-accounts if they held one on the record date.
The company sought shareholder nod for the bonus through postal ballot, e-voting for which was to be held on Nov. 2 and results announced by the same evening.
On Oct. 28, the company changed the record date from Nov. 3 to Nov. 11.
The company took approval via postal ballot, which takes a minimum of 21 days.
It also said that bonus shares will be credited to demat accounts of investors within two months of the board approval or at the latest by Dec. 2. To be sure, regulations require crediting shares within 60 days but this usually takes 30-35 days subject to meeting all regulatory conditions.
Shares of Nykaa have started getting credited though they are yet to get trading permission.
The Nykaa shares adjusted for bonus (ex-bonus) on Nov. 10. So, if an investor had 10 shares of Nykaa at the end of Nov. 9, when the closing value was Rs 1,076.15 apiece on the BSE, the portfolio value was Rs 10,761.5.
On the ex-bonus date of Nov. 10, the Nykaa share price adjusted for bonus and became one-sixth, and then trended higher to close at Rs 187.95 apiece. But the portfolio value of the investor is now Rs 1,859.50.
The remaining portfolio value is in the air till the company credits shares to the accounts of investors and applies to the stock exchange for listing these shares so that they are available for trading.
The investor now has to wait for the bonus shares to be credited into the demat account.
Ideally, the shares should be available to the investor for sale the day stock goes ex-bonus, said a senior executive at the market intermediary, speaking on the condition of anonymity.
Between the ex-date, the record date and shares getting credited to the account of investors, a lot can change in the portfolio value of the stock.
The concepts of ex-event, record date and crediting of shares needs to be reviewed given that technology has changed how shares are traded and transferred.
One option is that the record date could precede the ex-date. The shares should be approved for listing and transferred to the company depository so that they can be credited at the end of the record date. Companies normally take in-principle approval as soon as the board approves the bonus issue.
Since market intermediaries will know who holds shares in their demat accounts on record date, bonus shares can be seamlessly credited at the end of record date. And the investor can have the bonus shares with adjusted share price on the ex-date. Stock exchanges, using a pre-decided formula, adjust prices of the shares going ex-bonus based on previous day's closing price.
The shares along with bonus shares should then be enabled by exchanges to list/trade only on the ex-date. That way, an investor's portfolio value is secured.
It also depends on how fast a company is able to furnish all requirements, including getting the depository approval to issue ISIN before it can be transferred for trading. Once the ISIN is generated and transferred to the demat account of the investors, the exchange takes a day or two to list these shares for trading.
It requires the regulator and exchanges to rework the timelines on approval for listing of new shares, which today can anywhere between one week to a few weeks or a month depending upon the corporate action.