Ladies and gentlemen, gather arround as we delve into the absurd world of the Red Herring Prospectus (RHP) IPO draft regulations. As a sunday article, I hope our bureaucratic system puts a smile on your face.
Note — I occasionally write sarcastically. So take this article with a pinch of salt!
Strap yourselves in, because we’re about to embark on a journey that will make you question the sanity of those who crafted these rules.
Before we dive into the stupidity, let’s get the basics out of the way. The RHP is a preliminary registration document filed with SEBI (Securities and Exchange Board of India) for a book-building issue, which does not contain details of either the price or number of shares being offered or the amount of the issue.
Sounds simple enough, right? Wrong!
1. The 21-Day Rule: According to the regulations, the DRHP (Draft Red Herring Prospectus) must be filed at least 21 days before the IPO subscription opens. Why 21 days, you ask?
Well, because SEBI believes that potential investors need three weeks to read the document and make an informed decision. In a world where information is available at the click of a button, this rule seems as outdated as a flip phone.
2. The 3-Day Rule: As if the 21-day rule wasn’t enough, the RHP must be filed at least 3 days before the IPO subscription opens. Why not just make it a week or a month while we’re at it?
This rule is like telling a marathon runner to take a leisurely stroll for the first 26 miles and then sprint the last 0.2 miles.
3. The 10-Day Rule: After the IPO subscription closes, the company must file the final prospectus within 10 working days. Why 10 days? Why not 11 or 9? Who knows! It’s almost as if these numbers were pulled out of thin air by someone who thought they sounded authoritative.
4. The 15-Day Rule: And if you thought that was the end of it, think again! The minimum time between the filing of a registration statement and its effective date is 15 days.
That’s right, folks — you get an additional 15 days to sit back, relax, and ponder the meaning of life while your IPO paperwork gathers dust.
5. The 20% Rule: Here’s where things get really wacky. A shareholder must have held shares for a minimum of one year at the time of filing the DRHP.
But wait, there’s more! The minimum contribution of the pre-issue capital held by the shareholder must be at least 20%. It’s like saying, “Congratulations, you’ve held these shares for a year, but unless you’ve got at least a fifth of the pie, you’re not invited to the IPO party.”
A RHP is around a big book of 400 pages. There is very informative and important information regarding face value, value per share, etc. Understandable. But then there is a long paragraph on general risk and a paragraph of absolute responsibility.
I understand from a regulatory perspective, it is important. But how does that ensure the genuineness of message? While in this digital age, the filings can be more optimized for displaying core content instead of copy-pasting materials. The prospectus, even articles of associations are full of copy-paste.
Then we have definitions that go around 20 pages.
Well, after this, everything else is as good as a prospectus can be. But it is important to note that we’re far from an efficient bureaucratic system. Once blockchains and smart contracts evolve, I reckon that bureaucratic systems will change substantially for the good.
In conclusion, the RHP IPO draft regulations are a masterpiece of bureaucratic absurdity. They’re like a never-ending maze of arbitrary rules and deadlines designed to confuse and frustrate even the most seasoned investors.
So, the next time you find yourself scratching your head over these regulations, just remember — you’re not alone. We’re all in this comedy of errors together.
Thanks for reading all the way to the end. Don’t ever get stressed out. Let’s all just cheer to growth stories and struggle. Slowly but surely, we’ll fix everything. Until then, happy investing!
Love you all.
Originally published at https://chroniclebrews.substack.com.
