The National Stock Exchange of India (NSE) has been at the forefront of fostering entrepreneurship and promoting the growth of start-ups in the country. In line with this vision, NSE introduced the NSE Institutional Trading Platform (ITP) in 2015. The NSE ITP provides start-ups with a unique opportunity to raise capital through the stock exchange without the stringent regulations associated with an initial public offering (IPO). In this article, we will delve into the NSE Institutional Trading Platform and explore how it has become a game-changer for start-ups in India.
Understanding the NSE Institutional Trading Platform (ITP)
The NSE Institutional Trading Platform (ITP) is a specialized platform designed exclusively for start-ups to raise funds from the capital market. It serves as an alternative capital-raising platform for start-ups that do not wish to go through the traditional IPO route due to the complexities and compliance requirements associated with a full-fledged public offering.
The NSE ITP is regulated by the Securities and Exchange Board of India (SEBI) and operates under a separate set of rules known as the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (ICDR Regulations). These regulations are tailored to suit the unique needs and characteristics of start-up companies.
The NSE ITP provides a simplified and cost-effective process for start-ups to list and trade their shares on the exchange. It offers a unique opportunity for start-ups to attract investors, raise capital, and provide liquidity to their existing shareholders.
Eligibility Criteria for Listing on NSE ITP
To be eligible for listing on the NSE Institutional Trading Platform, a start-up must meet certain criteria set by SEBI. The eligibility criteria include:
- 1. The start-up must be a company registered under the Companies Act, 2013 or any previous Companies Act.
- 2. The company seeking listing on NSE ITP must be in the business of technology, information technology, intellectual property, data analytics, biotechnology, nanotechnology, or any other high-tech sector as per the discretion of the exchange.
- 3. The post-issue paid-up capital of the company should be at least INR 10 crores.
- 4. The company must have a positive net worth in the three preceding years.
- 5. The promoters, directors, and group companies should not be in the list of willful defaulters as published by the Reserve Bank of India (RBI) or under investigation by any regulatory authority.
- 6. The company must not have been referred to the Board for Industrial and Financial Reconstruction (BIFR).
- 7. The company should not have been convicted of any economic offense.
Advantages of NSE ITP for Start-ups
The NSE Institutional Trading Platform offers several advantages to start-ups, making it an attractive option for raising capital:
1. Easy Capital Raising: Start-ups can raise capital from the public market without the complexities and costs associated with a full-fledged IPO.
2. Investor Visibility: Listing on NSE ITP provides start-ups with enhanced visibility and credibility among potential investors.
3. Simplified Listing Process: The listing process on NSE ITP is streamlined and straightforward, enabling start-ups to access the capital market with ease.
4. Reduced Compliance Requirements: Start-ups listed on NSE ITP are subject to lighter compliance requirements compared to those listed on the main stock exchange.
5. Secondary Market Liquidity: Listing on NSE ITP allows existing shareholders of the start-up to exit through trading in the secondary market.
6. Brand Building: A listing on a recognized stock exchange like NSE enhances the brand image and reputation of the start-up.
7. Attraction for Institutional Investors: A listing on NSE ITP may attract institutional investors looking for opportunities in promising start-ups.
Application Process for NSE ITP Listing
The application process for listing on the NSE Institutional Trading Platform involves the following steps:
Step 1: Eligibility Check
The start-up must ensure that it meets all the eligibility criteria specified by SEBI and NSE for listing on the NSE ITP.
Step 2: Appointing Advisors
The start-up needs to appoint a merchant banker, legal advisors, and other intermediaries to assist with the listing process.
Step 3: Drafting Offer Document
The start-up, along with its advisors, prepares the offer document, which includes information about the company, its financials, business operations, risk factors, and other relevant details.
Step 4: Filing Offer Document with NSE
The offer document is filed with NSE for review and approval. NSE examines the document to ensure compliance with regulatory requirements.
Step 5: Investor Roadshow
The start-up may conduct an investor roadshow to generate interest among potential investors and create awareness about the offering.
Step 6: Listing and Trading
Upon receiving approval from NSE, the start-up is listed on the NSE Institutional Trading Platform, and its shares become available for trading in the secondary market.
Compliance and Reporting Requirements
While the compliance requirements for start-ups listed on the NSE ITP are relatively lighter compared to those of mainboard listed companies, they still need to fulfill certain obligations:
1. Quarterly Compliance Report:
The start-up must submit a quarterly compliance report to NSE, confirming the fulfillment of the applicable continuous listing requirements.
2. Annual Audited Financials:
The start-up is required to disclose its annual audited financial statements to the stock exchange.
3. Corporate Governance Report:
The start-up must submit a corporate governance report, providing details of its corporate governance practices.
4. Other Disclosures:
The start-up must make timely disclosures of any material information or events that may impact its operations or financial performance.
Challenges of NSE ITP Listing for Start-ups
While the NSE ITP offers several benefits, start-ups considering this route may also face some challenges:
1. Limited Investor Base:
As the NSE ITP is a relatively new platform, it may have a limited pool of investors, impacting the liquidity of the start-up’s shares.
2. Risk Perception:
Investors may perceive NSE ITP-listed companies to be riskier compared to mainboard-listed companies due to the relaxed compliance requirements.
3. Information Asymmetry:
Start-ups may face challenges in disseminating information and gaining visibility among potential investors in the market.
4. Exit Options for Investors:
The secondary market for NSE ITP-listed companies may have limited liquidity, which can be a concern for investors looking for exit options.
Conclusion
The NSE Institutional Trading Platform has emerged as a significant avenue for start-ups to access the capital market and raise funds from the public. By providing a simplified and cost-effective listing process, NSE ITP has made it easier for start-ups to attract investors and provide liquidity to existing shareholders. While it comes with certain compliance requirements, these are relatively lighter compared to the mainboard listing. However, start-ups should carefully weigh the advantages and challenges before opting for the NSE ITP route and must ensure they meet the eligibility criteria set by SEBI and NSE.
By Astrobulls Research Pvt Ltd.