Designated Stock Exchange
Also written DSE
The one exchange, among those where an issuer seeks listing, that the issuer chooses to anchor the issue — holding the 1% security deposit and overseeing the basis of allotment with the lead manager and registrar.
In plain language
A company listing on both NSE and BSE applies to both for in-principle approval, and both will list its shares. But several issue-stage jobs need one exchange to own them: holding the issuer's security deposit, sitting with the registrar while the basis of allotment is finalised, approving rounding-off in an oversubscribed book. That exchange is the designated stock exchange.
The issuer picks it. The only constraint on the choice is practical: if any of the exchanges where it is listing has nationwide trading terminals, the designated stock exchange must be one of those.
How it works
Definition (Chapter 4). The stock exchange where the securities of the issuer are proposed to be listed and which is chosen by the issuer. Where one or more of those exchanges have nationwide trading terminals, the issuer shall choose one of them.
Where the choice is made. The general conditions for an IPO (Regulation 7) and an FPO (Regulation 104) require the issuer to have applied to one or more stock exchanges for in-principle approval and to have chosen one of them as the designated stock exchange. An SME issuer makes the same choice among SME exchanges, in terms of Schedule XIX.
What it does in the issue.
| Function | Rule | Chapter |
|---|---|---|
| Security deposit | Before the subscription list opens, the issuer deposits 1% of the issue size available for subscription to the public with the designated stock exchange; refundable or forfeitable as SEBI specifies | 5 |
| Rounding off | No allotment beyond the securities offered, except rounding-off in an oversubscribed issue in consultation with the designated stock exchange; up to 1% of the net offer may be allotted for minimum lots | 5 |
| Basis of allotment | Authorised employees of the designated stock exchange, with the lead manager(s) and registrars, ensure the basis of allotment is finalised in a fair and proper manner | 5 |
| Debt public issues | The registrar submits the basis of allotment to the designated stock exchange, and the issuer's board allots on its approval; copies of the draft and final offer document go to SEBI simultaneously with filing with the designated stock exchange | 8 |
| REITs | The draft offer document is filed with the designated stock exchange(s) and SEBI not less than thirty working days before filing the offer document, and hosted for comments for not less than 21 days | 2 |
It is not the only exchange that matters. In-principle approval is still needed from all recognised exchanges where an IPO is to be listed, and every one of them lists the shares.
A worked example
Illustrative figures. Deccan Renewables Ltd plans a Rs 1,200 crore book-built IPO, listing on NSE and BSE — both with nationwide trading terminals.
Choosing. It applies to both for in-principle approval and chooses NSE as the designated stock exchange. It could equally have chosen BSE. It could not have chosen a regional exchange without nationwide terminals, even if it were also listing there.
Security deposit. On an issue size available to the public of Rs 1,200 crore:
Security deposit = 1% × 1,200 = Rs 12 crore, lodged with NSE before the issue opens
Oversubscribed book. The net offer is Rs 1,140 crore at Rs 300 = 3.8 crore shares. Allotting in minimum lots leaves odd remainders, so the registrar proposes rounding up. The ceiling:
1% × 3,80,00,000 = 3,80,000 extra shares ≈ Rs 11.4 crore
— and it may be done only in consultation with NSE, whose authorised employees also sit with the lead manager and registrar to confirm the basis of allotment is fair and proper.
BSE still lists the shares on the same day. It simply does not carry the deposit or the allotment oversight.
Why NISM asks about it
Chapter 4 (Issue Management – Important Terms) defines the term; Chapter 5 (Issue Management – Process and Underwriting) — the security deposit, rounding-off and basis-of-allotment rules — is where it is applied; Chapter 8 uses it in debt issues and SME general conditions; Chapter 2 uses it in the REIT and InvIT sections.
The 1% security deposit and the "nationwide trading terminals" rule are the likely questions.
Common exam traps
- The issuer chooses the designated stock exchange — not SEBI and not the lead manager.
- Nationwide terminals restrict the choice only where at least one candidate exchange has them.
- 1% of the issue size available for subscription to the public is the security deposit — do not confuse it with the 1% of the net offer rounding-off allowance.
- In-principle approval is from all exchanges, not only from the designated one.
- SME issuers choose among SME exchanges.
- The designated stock exchange oversees the basis of allotment alongside the lead manager and registrar; it does not replace them.
Check yourself
1.Who is required to look into and monitor the redressal of investor grievances arising during the issue management process?
- a)The lead merchant banker
- b)The registrar to an issue
- c)The debenture trustee
- d)The depository
Show the answer
Answer: (a) The lead merchant banker
The post-issue lead merchant bankers should look into the post-issue activities such as allotment, refund, dispatch and giving instructions to the syndicate members, Self-Certified Syndicate Banks and other intermediaries. The lead merchant banker is required to also look into and monitor the redressal of the investor grievances if any.
Chapter 5 says the same: the lead manager shall regularly monitor redressal of investor grievances arising from any issue related activities.
The registrar has a role but not this one. It processes applications and works with the lead manager and the designated stock exchange to finalise the basis of allotment — the authorised employees of the designated stock exchange, along with the lead manager(s) and registrars to the issue, shall ensure that the basis of allotment is finalised in a fair and proper manner.
The debenture trustee appears only in convertible debt issues, and the depository holds securities in demat form and records lock-ins.
The lead manager's post-issue responsibility runs long: it shall continue to be responsible for post-issue activities till the applicants have received the securities certificates, credit to their demat account or refund of application monies and the listing agreement is entered into by the issuer with the stock exchange and listing or trading permission is obtained.
And within the merchant banker itself, one officer owns the task. Chapter 3 makes the compliance officer responsible for redressal of investors' grievances, within twenty-one calendar days from the date of receipt of the grievance, with SCORES checked on a daily basis.
The issuer must also appoint its own compliance officer — responsible for monitoring the compliance of the securities laws and for redressal of investors' grievances.
2.Before the subscription list opens, how much must the issuer deposit, and with whom?
- a)One percent of the issue size available for subscription to the public, with the designated stock exchange
- b)Ten percent of the issue size, with SEBI
- c)One percent of the issue size, with the lead manager
- d)Fifteen percent of the issue size, with the bankers to the issue
Show the answer
Answer: (a) One percent of the issue size available for subscription to the public, with the designated stock exchange
One percent, with the designated stock exchange. The workbook: the issuer shall, before the opening of the subscription list, deposit with the designated stock exchange, an amount calculated at the rate of one percent of the issue size available for subscription to the public. The amount shall be refundable or forfeitable in the manner specified by SEBI.
- Ten percent with SEBI — wrong rate and wrong recipient.
- With the lead manager — right rate, wrong party; the deposit sits with the exchange.
- Fifteen percent — fifteen percent is the interest rate for delayed refunds, not a deposit rate.
3.Which statement about allotment and refund in a public issue is correct?
- a)Allotment may be made to any number of allottees provided the issue is fully subscribed
- b)No allotment may be made if prospective allottees number less than one thousand, over-allotment is limited to one percent of the net offer for rounding into minimum lots, and delayed allotment or refund attracts fifteen percent per annum interest
- c)Over-allotment of up to fifteen percent is permitted for rounding purposes
- d)Refunds may be made by cheque at the issuer's convenience
Show the answer
Answer: (b) No allotment may be made if prospective allottees number less than one thousand, over-allotment is limited to one percent of the net offer for rounding into minimum lots, and delayed allotment or refund attracts fifteen percent per annum interest
The issuer shall not make an allotment pursuant to a public issue if the number of prospective allottees is less than one thousand.
The issuer shall not make any allotment in excess of the specified securities offered through the offer document except in case of oversubscription for the purpose of rounding off to make allotment, in consultation with the designated stock exchange — and then an allotment of not more than one percent of the net offer to public may be made for the purpose of making allotment in minimum lots.
Where the specified securities are not allotted and/or application monies are not refunded or unblocked within the period stipulated..., the issuer shall undertake to pay interest at the rate of fifteen percent per annum to the investors.
Option C borrows the green shoe figure. Fifteen percent is the maximum excess allotment under a green shoe option — a post-listing price stabilising mechanism — not the rounding allowance, which is one percent.
Option D ignores the electronic requirement: the lead manager(s) shall ensure that the allotment, credit of dematerialised securities and refund or unblocking of application monies, as may be applicable, are done electronically.
The allotment floors by category: the allotment of specified securities to each retail individual investor shall not be less than the minimum bid lot, and the allotment... to each non-institutional investor shall not be less than the minimum application size — with the remainder in each case allotted on a proportionate basis.
Everyone else is proportionate: the allotment of specified securities to applicants other than to the retail individual investors, non-institutional investors and anchor investors shall be on a proportionate basis within the respective investor categories and the number of securities allotted shall be rounded off to the nearest integer.
With a reservation cap: the value allotted under a reservation shall not exceed two lakhs rupees for retail investors or up to five lakhs rupees for eligible employees.
And the basis is settled jointly: the authorised employees of the designated stock exchange, along with the lead manager(s) and registrars to the issue, shall ensure that the basis of allotment is finalised in a fair and proper manner.
Where this is taught
Free preparation for NISM Series IXRelated terms
- Red Herring ProspectusThe offer document used in a book-built public issue, containing every disclosure a prospectus carries except the final price or number of shares, filed with the Registrar before the issue opens.
- SME ExchangeA trading platform of a recognised stock exchange with nationwide terminals, permitted by SEBI to list securities of small and medium enterprises — distinct from the Main Board.
- Merchant bankerA SEBI-registered body corporate engaged in the business of issue management — arranging the selling, buying or subscribing of securities, or acting as manager, consultant or adviser in relation to an issue.
- Registrar to an issueA SEBI-registered intermediary that, for an issuer, collects applications, keeps records of applications and money, and helps fix the basis of allotment and send out allotments and refunds.
- Net offer to publicThe offer of specified securities to the public excluding reserved portions (such as for employees) and any securities subscribed by the promoter group — the pool that is split among QIBs, NIIs and retail.