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Paytm Shares Plunge Over 10% Amid MDR Rumours and Government Clarification
Market News, Markets - April 17, 2025

The Impact of Vijay Shekhar Sharma's Rs 492 Crore Surrender on Paytm Investors.

The Impact of Vijay Shekhar Sharma’s Rs 492 Crore Surrender on Paytm Investors.

 

Regulatory Scrutiny and Voluntary Surrender

On April 16, 2025, Vijay Shekhar Sharma, founder and CEO of Paytm’s parent company One97 Communications, made a pivotal decision to return 2.1 crore Employee Stock Options (ESOPs), valued at approximately ₹492 crore. This action followed scrutiny from the Securities and Exchange Board of India (SEBI), which raised concerns over the classification of promoters during Paytm’s Initial Public Offering (IPO) in 2021. SEBI’s investigation revealed that Paytm’s promoters may have misrepresented their status, allowing them to receive stock options in violation of regulations that prevent promoters from benefiting from ESOP schemes.
Sharma’s move to voluntarily return the stock options is part of a broader effort to address SEBI’s concerns and demonstrate transparency and regulatory compliance.

SEBI’s Allegations and Sharma’s Response

SEBI issued a show-cause notice to Vijay Shekhar Sharma and his company, questioning the legitimacy of Paytm’s promoter classification in the IPO process. Under SEBI rules, promoters are prohibited from receiving ESOPs as they are designed for employees. However, since Sharma had listed himself as a non-promoter during the IPO, he was eligible for stock options, which raised doubts regarding the fairness of this allocation.
In response, Sharma decided to forfeit the ESOPs, an amount worth ₹492 crore, while also agreeing to a settlement with SEBI, paying a fine of ₹2.79 crore. This proactive step from Sharma goes beyond the settlement, as he aimed to address any doubts regarding Paytm’s compliance with regulatory standards.

The Financial Impact of Returning ESOPs

Sharma’s decision to return the 2.1 crore ESOPs translates into a one-time, non-cash charge of ₹492 crore for Paytm, which will be recorded in its financial statements for the fourth quarter of FY 2025. This amount represents a significant reduction in potential equity for the company and reflects a loss in shareholder value. However, the cancellation of these stock options will decrease Paytm’s future ESOP expenses, easing long-term financial pressures.
While the return of shares carries immediate financial consequences, Paytm expects the move to have a positive impact on the company’s governance and investor relations in the future. By addressing SEBI’s concerns, Paytm is likely to regain investor trust and improve its position in the market.

Market Reaction to the Announcement

Following the announcement of the voluntary surrender of ESOPs, Paytm’s stock saw a brief decline. On April 17, 2025, Paytm’s shares declined by over 2%, as concerns about the decision’s immediate financial implications rattled the market. The uncertainty surrounding Paytm’s current financial status is shown by the investors’ response.
Nevertheless, market analysts view the surrender as a positive move in the long run. By voluntarily returning the ESOPs, Sharma is signaling to investors that Paytm is committed to adhering to regulations and improving corporate governance. While the stock price reaction was negative, it may improve once investors recognize the company’s effort to align with best practices and regulatory guidelines.

Corporate Governance and Long-Term Benefits

Sharma’s dedication to improving Paytm’s corporate governance is evident through his choice to voluntarily give up the stock options. The scrutiny over the IPO and stock option distribution has highlighted the need for increased transparency in India’s rapidly growing fintech sector. Sharma’s decision to forfeit the ESOPs is seen as a key step in addressing these concerns and reinforcing Paytm’s focus on ethical business practices.
Corporate governance is becoming increasingly important for companies in India’s startup ecosystem, especially as they transition into public markets. Paytm’s actions may set a precedent for other tech companies to prioritize regulatory compliance and transparency to safeguard shareholder interests. Sharma’s decision to act swiftly and decisively underscores his recognition of the significance of adhering to SEBI’s regulations.

Long-Term Strategy and Future Prospects

While the return of the ESOPs has short-term financial implications, it positions Paytm to grow more sustainably in the long run. The cancellation of these stock options eliminates a potential future financial burden, allowing Paytm to focus more on its core business and less on managing stock option-related expenses.
Additionally, the commitment to transparency and regulatory compliance is likely to strengthen Paytm’s reputation with investors, analysts, and other stakeholders. As Paytm continues to expand its services in the digital payments and fintech sectors, maintaining strong corporate governance will be crucial to its long-term success.

Conclusion: Restoring Investor Confidence

Vijay Shekhar Sharma’s resolve to improve Paytm’s governance procedures and guarantee complete adherence to SEBI rules is demonstrated by his decision to relinquish ESOPs valued at ₹492 crore. While this move has immediate financial consequences, it is a positive step toward strengthening Paytm’s long-term prospects. By addressing regulatory concerns head-on, Sharma is restoring investor confidence and positioning Paytm for future growth.
As Paytm moves forward, the focus on transparency, regulatory adherence, and corporate governance will be essential to the company’s sustained success in the competitive fintech landscape. Sharma’s proactive stance in resolving the issue serves as a model for other companies in India’s startup ecosystem, especially as more firms transition to the public markets.

 

 

 

 

 

 

 

 

 

 

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Business, Equities, Market News, Markets - December 20, 2024

SME IPO Migration: Key Changes in SEBI Guidelines

SME IPO Migration: Key Changes in SEBI Guidelines

On 18th December 2024, the Securities and Exchange Board of India (SEBI) issued revised guidelines for Small and Medium Enterprises (SMEs) seeking to migrate from the SME platform to the mainboard of stock exchanges. These updated norms aim to ensure financial robustness and operational stability for companies making the transition. The guidelines apply to both BSE and NSE platforms and are as follows:

Migration to Mainboard
For SMEs to migrate to the BSE Mainboard, they must meet the following criteria:

  • Paid-up Capital: The company should have a paid-up capital exceeding ₹10 crores.
  • Market Capitalization: The company’s market capitalization must be at least ₹25 crores.
  • Net Worth: A minimum net worth of ₹15 crores for the two preceding full financial years is required.
  • Listing Duration: The company must have been listed on the SME platform of the Exchange for at least three years.
  • Positive EBITDA: The company should have posted a positive EBITDA for at least two out of the last three financial years.
  • Positive PAT: A positive Profit After Tax (PAT) in the immediate financial year of making the migration application is necessary.
    Migration to NSE Mainboard

For SMEs to migrate to the NSE Mainboard, the guidelines are slightly stricter, requiring:

  • Paid-up Capital: The company must have a paid-up capital of ₹10 crores or more.
  • Market Capitalization: A minimum market capitalization of ₹25 crores is mandatory.
  • Net Worth: The company should have a net worth of at least ₹75 crores.
  • Listing Duration: A listing period of three years on the SME platform is essential.
  • Positive EBITDA: A positive EBITDA from operations for each of the preceding three financial years is required.
  • Positive PAT: The company must show a positive PAT in the immediate financial year prior to applying for migration.

Disclaimer
These guidelines, issued on 18th December 2024, are subject to change at the discretion of the exchanges.

The revised criteria reinforce the importance of consistent financial performance and operational maturity for SMEs looking to scale up to the mainboard.

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Economy, Expert Views, Market News, Markets - January 9, 2024

SEBI Announces Comprehensive Framework for Short Selling and Securities Lending

SEBI Announces Comprehensive Framework for Short Selling and Securities Lending

In a significant development, the Securities and Exchange Board of India (SEBI) has unveiled a comprehensive framework governing short selling and securities lending and borrowing scheme (SLBM). The regulatory body’s announcement, made on Friday, outlines key guidelines aimed at fostering transparency and integrity in the Indian securities market.

Inclusion of All Investors in Short Selling, With a Strict Prohibition on Naked Short Selling:
SEBI has granted approval for investors across all categories to participate in short selling activities. However, a notable restriction has been imposed to disallow naked short selling, a practice where a seller engages in short selling without possessing the securities at the time of the trade. This measure is designed to ensure the legitimacy and stability of the market.

Eligibility of All F&O Segment Stocks for Short Selling:
SEBI’s directive highlights that all stocks trading in the futures and options (F&O) segment are eligible for short selling. This move is anticipated to enhance market liquidity and provide investors with a broader range of options for executing short selling strategies.

Obligation Adherence for Delivering Securities:
The market regulator emphasizes the mandatory obligation for all investors to deliver securities at the time of settlement. This requirement underscores SEBI’s commitment to upholding the integrity of transactions and ensuring timely fulfillment of contractual obligations.

Prohibition on Day Trading and Intra-day Square Off for Institutional Investors:
SEBI’s framework explicitly prohibits institutional investors from engaging in day trading or squaring off transactions intra-day. This measure aims to promote a more stable and long-term approach to investing among institutional participants.

Supreme Court’s Directive Prompts Investigation:
The regulatory changes follow a directive from the Supreme Court, urging SEBI to investigate potential losses suffered by investors and assess any breaches of the law related to short positions. This directive was prompted by allegations from US short seller Hindenburg Research, which claimed that the Adani Group had violated stock market rules. SEBI is currently conducting an investigation into these allegations.

Introduction of Securities Lending & Borrowing Scheme (SLBM) Concurrent with Institutional Short Selling:
SEBI has announced that the introduction of a comprehensive Securities Lending & Borrowing Scheme (SLBM) will coincide with the implementation of short selling by institutional investors. This integrated approach aims to facilitate a more robust and efficient securities lending mechanism in the market.

Enhanced Disclosure Requirements for Brokers and Investors:
SEBI has mandated brokers to collect and upload scrip-wise short sell positions on exchanges before the commencement of trading on the following day. Retail investors have the flexibility to make necessary disclosures by the end of the trading hours. The regulatory body emphasizes the importance of transparent reporting to enhance market visibility and public awareness.

Balancing Market Stability and Efficiency:
Acknowledging the potential impact on market efficiency, market experts caution that limitations on short selling, particularly naked shorting, may impede liquidity, especially in smaller stocks. However, SEBI’s move is seen as a proactive measure to curb market manipulation and protect retail investors. A data-driven approach, with periodic reviews and adjustments, will be crucial to maintaining a healthy balance between market stability and dynamism. Monitoring the impact of these regulations will be essential to assess whether the benefits of curbing manipulation outweigh potential costs to market efficiency.

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Editorials, Equities, Markets - July 27, 2022

Government allows Indian public companies to directly list shares overseas.

Government allows Indian public companies to directly list shares overseas.

 

Government’s vision for betterment of Indian companies:

In late January 2020 Government of India communicated to media that they are planning to allow direct listing of Indian companies in foreign markets. This will help Indian companies to not only rely on domestic markets but they can also raise capital on large scale from various foreign markets which will help companies in diversification and growth. This move can directly help Indian companies in increasing their turnover and profits.

Till now Indian companies go for the depository receipts to attract investors globally but this is bit unfamiliar amongst the investors globally and been less attractive in recent years. A minimum of 15 Indian companies currently attract foreign investors via ADR’s and GDR’s. These companies includes Reliance Industry, HDFC Bank, Infosys and many others.

 

Green signal by Indian Government:

Finance Minister Nirmala Sitharaman had announced an economic package of ₹ 20 lakh crore under government’s Atma Nirbhar Bharat Abhiyan. This is done for the revival of Indian Economy. It is an umbrella of massive ₹ 20 lakh crore economic booster package. The government ensured to provide some relaxation in all the sectors.

To improve “ease of doing business” in India, government allowed Indian public companies to list their shares in foreign markets. This provision will help Indian companies for better valuations, rapid growth and expand their businesses on a large scale. This move will help Indian companies to get funds at a cheaper rate from various foreign markets. This will directly help Indian economy to recuperate in a speedy way.

Government noted private companies that listed Non-convertible debentures (NCDs) on Indian stock exchanges not to be considered as listed companies. It is also expected that this provision is to prevent Indian companies to register themselves in foreign markets like Singapore and London for raising a fund and going global.

 

Existing vs proposed rule:

The existing rule states that companies which are listed on Indian stock markets can only list their company in foreign markets. Whereas, new proposed rule states that there is no compulsion for it. Indian companies can list themselves directly in various foreign markets to raise capital.

Until now, only American Depository Receipt (ADR’s) and Global Depository Receipt (GDR’s) can collect capital from foreign market sources. At least 15 Indian companies follow this mechanism to raise capital from foreign markets. However, this is not much familiar amongst the global investors. To eradicate this the new provision will allow Indian companies to a fresh new issue of shares or sale of existing holdings.

 

Rules and regulation:

All the required rules and regulation for listing an Indian company at abroad will be notified soon by the government. Once the provisions to the Foreign Exchange Management Act (FEMA) and Company Law Regulations are passed. Media noted Indian foreign exchange control laws do not require free capital convertibility, and there are other regulatory limits on capital account transactions.

Nevertheless, this proposal has been under discussion for a couple of years between stakeholders and regulators, especially regarding the selection of foreign jurisdiction. SEBI had indicated in 2018 that this route would be open only to the financially sound companies, so that the mechanism could not be used for exploitation. Sources indicated that final rules in this respect would probably be based on the Financial Action Task Force’s recommendations.

Finance Minister Nirmala Sitharaman noted, this provision of direct listing. If Indian public companies are not available over the globe but will be allowed in permissible jurisdictions.

 

Precautionary measures:

However, the approval will not come without any protections. The Indian government is likely to go along with the recommendations raised by SEBI in 2018. This requires a direct listing of Indian companies in abroad. It had suggested 10 overseas jurisdictions, including the US, UK, Japan, China, Hong Kong and South Korea for Indian companies to list. The selection was based on the fact that these jurisdictions are part of the Financial Action Task Force (FATF), The Anti-Money Laundering Global Task Force (GTF-AML) and IOSCO.

SEBI also suggested that this provision should be available only for financially stable . This will aid  to minimize frauds and manipulation. The firms with a  paid-up capital of 10% will be allowed to list in the foreign market.

The provision of capital raising in an overseas market can also have an impact on the Indian currency market. Since the flow of overseas capital can put pressure on the Indian currency and may lead to volatility. RBI and SEBI can be jointly involved to check this.

 

 

 

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SEBI demands info on unlisted bonds

SEBI demands info on unlisted bonds

The SEBI has asked the mutual fund industry to share information pertaining to the holdings in unlisted bonds. These are securities which cannot be traded in the Indian bond market. This is due to the corona virus outbreak which has froze the entire bond market, It has made the fund managers unable to sell or pledge their funds.

 

Data to be submitted to SEBI:

SEBI has asked the mutual fund industry to provide details regarding the assets under management of holding unlisted NCD schemes. Adding to it, the details of investments in unlisted bonds and the share in such bonds.

 

Extending the deadline:

SEBI has directed the mutual fund industry to decrease the investment in unlisted NCDs to 15% by the end of March and to 10% by the end of June 2020. Looking into the current scenario of the mutual fund industry, SEBI has increased the deadline by 6 months. In the month of October, the mutual fund industry was prohibited from investing in unlisted bonds by SEBI. This led to illiquidity of unlisted commercial papers and unlisted NCDs in securities.

 

Shut down of 6 debt funds by Franklin Templeton:

Recently, Franklin Templeton shut down 6 debt funds which comprised nearly 32% of the total value of unlisted papers. SEBI has asked the Association of Mutual Funds in India to give the details regarding the total portfolio’s investment breakup in such unlisted NCD schemes. It must include the residual maturity of listed and unlisted bonds and the details regarding other listed securities.

An industry person said to the media that some of the listed bonds are illiquid in the current market. SEBI will probably scrutinize the level of risk and stress the system if the redemption continues. These are particularly related to the mid sized companies with unlisted NCDs. It is because the terms and conditions are not easily available for such unlisted papers.

 

Friday’s deadline:

The deadline given by the SEBI to fund houses was Friday. A source said to the media that Friday was a bank holiday and the stock exchanges were closed. Hence, they didn’t expect an email from SEBI asking for the data. Many funds have been redeemed leading to an increase in the bond yields. Many mutual fund industries have asked banks to avail loans to increase the liquidity position. The fund industries would generally take an overdraft facility from banks to meet their cash flow needs.

 

Losses borne by AMCs when funds are borrowed:

A fund manager said that whenever the mutual fund schemes borrow, they have to pay interest to the extent of average portfolio yield. Mostly the borrowings are higher than portfolio yields and the difference is to be borne by the Asset Management Company. 20% of its AUM can be borrowed by the mutual fund schemes.

 

 

 

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Banking, Economy, Equities, Market News - April 29, 2020

SEBI and RBI review situation after Franklin fiasco

SEBI, RBI review situation after Franklin fiasco

The RBI and SEBI look to determine the damage from Franklin Templeton’s decision. After their decision to close six debt funds, RBI and SEBI look to contain the fallout from this decision. Franklin Templeton’s decision has raised concerns that investors will withdraw from similar categories across the industry.

RBI’s take on Franklin Templeton’s decision:

The RBI may change rules to encourage banks to borrow more. Through the reverse repo window, RBI may limit the amount it absorbs from banks. The amount may be set at Rs. 2 lakh crore. With banks parking Rs 7 lakh crore from reverse repo, RBI believes there is enough liquidity. To deal with liquidity positions and redemption, RBI officials has communicated with fund managers and banks. One of the proposals was to goad banks to purchase bonds of firms that are investment category. The bonds should not be triple-A rated.

SEBI seeks details from mutual funds:

SEBI also needs information from mutual funds regarding liquidity position and extent of redemption from their debt schemes portfolio. Based on current portfolios, SEBI wants to determine whether mutual funds can handle huge redemption. They also want to know the position of mutual funds regarding debt fund liquidity and days required to liquidate holdings. Debt mutual funds capital is estimated at Rs. 12 lakh crore approximately. According to estimations, Franklin Templeton froze about Rs. 55,000 crore of this credit funds.

Mutual funds approach:

To contain the fallout, mutual funds have also sought help from finance ministry and Niti Aayog for measures. RBI believes there is enough liquidity for fund houses and it is only a matter of channelizing it. However, Fund houses desire to have a separate lending window. The reverse repo rate has already been cut down to 3.75%.

On April 24, mutual funds sold a few top-rated securities assuming the pressure of redemption in the coming days. In the bond market, risk aversion led to yields higher than normal by 20-30 points on April 24.

A few of the large mutual funds persuaded SEBI to boost the borrowing limit. This increase is sought due to the COVID-19 pandemic causing financial markets to freeze as there are sharp outflows. These outflows are from different debt products.

Franklin Templeton stop redemptions:

Following the massive outflows in the last 2 months, Franklin Templeton were compelled to stop redemption. Franklin Templeton has mostly low rated papers in the rest of the portfolio. They only have a select number of buyers in the current market. They have also drained the lending limits in these schemes with banks.

RBI’s inquiry:

RBI inquiry to the mutual find industry is to assess the loan amounts taken from banks. They also need information on the ‘lines of credit’ used by asset management companies and the ‘un drawn lines’. These details are required for March 31 and April 24. To meet the other payout and redemption demands, mutual funds are granted to borrow 20% of their capital from banks. If this limit is exhausted, a raise up to 40% is allowed by SEBI based on merit.

Majority of the mutual funds except Franklin Templeton has not even utilized the 20% limit after RBI pumped money. The money was injected through long-term repo operations (LTRO) in to the system in March.

As of April 23, the borrowings of four mutual funds including Franklin Templeton was Rs. 4,427 crore. On March 31, the assets under debt schemes of the mutual fund industry was Rs. 10.3 lakh crore. This figure is 16% less from the earlier month.

 

 

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