New regulations proposed

It is here that the new set of regulations proposed by NSE and BSE on such NCLT companies will come in handy. In the recent case, we saw a surge in prices of Jet Airways, while it was clear all along that Jet shareholders will get nothing. The speculative bubble allowed traders to redistribute the hyped-up stocks to the retail investors and make an exit. Now, the exchanges have moved in to rectify the situation. It was long overdue and has not come even a day too soon. 

Disclosure and transparency

One of the big challenges today is the time lag in disclosures. Once the NCLT gives its oral insolvency resolution order, there is a time lag before NCLT issues the written order. This is the period that people with access to privileged data can use to create price asymmetry. To overcome this situation, NSE and BSE have proposed that the resolution plan be disclosed to the stock exchanges within 30 minutes of the oral approval received from NCLT. The company must also notify about the NCLT hearing at least 2 days in advance. These will go a long way in, at least, ensuring that there is no information asymmetry edge. 

Zero net worth cases

The major announcement made by the stock exchanges was in zero net worth cases. This is extremely important. NSE has pointed out that in many cases, the investors are not aware of the financial status of the company or are unable to crystallize a view. Going ahead, all cases where companies are referred to NCLT will be tagged appropriately to identify them as NCLT cases. Alerts will be given at the time of order entry also. Above all, if the value of the listed securities is zero or if the company will be delisted or if the entire equity capital is reduced or cancelled without payment, then trading in such stocks will immediately be suspended. This should be helpful. 

Avoid fly-by-night investing

It is not wrong to say that for every fly by night promoter, there are thousands of fly-by-night small investors who just want to make a quick buck out of every opportunity. That is what leads a lot of small investors into the temptation of buying such penny stocks, NCLT stocks, bankrupt stocks etc. As much as these regulations put out by NSE and BSE are extremely well-timed, investors must also exercise their own restraint while trading in the stock markets. Indian markets offer a plethora of high-quality investment opportunities with the safety of a sound business model. It is only when investors stop chasing such stocks that the new system will really work!