In a major initiative at reducing the clutter in initial public offer-related advertising, the Securities and Exchange Board of India on Tuesday said the mandatory pre-issue advertisements needed to contain only the bare minimum details.

The market regulator has also come up with an amended format for listing disclosures in the prospectus. The amendments take effect from February 25, 2005.

Tuesday's amendments to the disclosure guidelines mean that issuers will have lower pre-IPO costs to bear. Besides, the effectiveness of their issue-related messages is expected to improve.

Investors, too, will benefit from the standard format of disclosures, which will increase predictability and access to information.

Sebi said issuers were free to make additional disclosures in the media, but it would not be mandatory as "the bulk of the disclosures are carried in the application forms". This will bring down issue-related costs.

Sebi has listed the minimum level of disclosures in each advertising material and has also mandated that items be listed in a particular order.

Explaining the rationale, Sebi said: "The standard order of presentation is not intended to reduce the flexibility for the issuer to include other disclosures not mentioned in the guidelines. Issuers are free to make additional disclosures, as long as they are not inconsistent with the guidelines."

Sebi has also removed restrictions on the number of co-managers and advisers to public issues. Present guidelines stipulate that there can be only one adviser and the number of co-managers cannot exceed the number of lead managers. This restriction has now been removed. Further the responsibilities of each lead manager have to be demarcated and disclosed in detail.

The guidelines have also increased the amount of disclosures pertaining to issue expenses. Further, the prospectus has to carry a detailed explanation on how the company arrived at the issue price.

The guidelines have also sought to do away with repetitive disclosures. Increasing the readability and the visual impact of the contents have also been emphasised upon.

Sebi is planning to keep the disclosure requirements in line with the Sarbanes-Oxley Act so that other ventures floated by the promoters are disclosed.

At present, the prospectus just dwells on the risk factors. Under the amended guidelines, apart from just listing the risk factors, as perceived by the management, the issuers will have to disclose how they propose to deal with these risks.

The prospectus should also contain details of market transactions undertaken by the promoters and their relatives in the six months preceding the issue.

Cutting out the clutter

• Sebi mandates only minimal content in IPO-related advertising
• Full disclosures in IPO prospectus need to follow a format
• Regulator removes restrictions on the number of co-managers and advisers
• Sebi says issuers must disclose how they arrived at the price

What it means for issuers

• Lower advertising costs
• Better visibility and sharper reach

What it means for investors

• No information overload, no repetitive disclosures
• Fixed format will improve access to relevant information because of greater predictability
• Investors can examine the rationale of issue pricing