The Securities and Exchange Board of India (Sebi) has allowed non-promoter shareholders to sell their shares through an offer for sale (OFS). Only promoters or promoter group entities can sell shares through OFS.

“The OFS mechanism applies to companies with a market capitalization of Rs 1,000 crore and above. Any promoter or promoter group entity or non-promoter shareholders of such companies can issue shares through this mechanism,” Sebi said in new guidelines on the OFS mechanism on Tuesday.

The minimum size of the offer will be Rs 25 crore unless the promoter or promoter group entity wishes to achieve a minimum public float in a single tranche. This would allow large non-sponsor shareholders to sell more shares at a better price.

“Until now, large institutional non-promoter shareholders with 5-8% stakes have not been able to take advantage of OFS facilities. This means that these non-promoter institutional shareholders have had to rush through brokers to expedite large transactions, and they have had to accept deep discounts,” said Jimeet Modi, Founder and CEO of SAMCO Group.

The move would also benefit retail investors, he added. Until now, while institutional investors negotiated block sales through brokers, retail investors could not participate and buy such shares, even at a discount. This will change under the new regime.

Individual retail investors can choose retail and ordinary (non-retail) categories for bidding. To make it easier for retail investors to participate in OFS, the seller will allow them to bid at the cut-off price while bidding.

Depending on how it is allocated, at least 25% of the shares should be reserved for mutual funds and insurance companies.

The seller will announce its intention to sell the shares and disclose the reserve price by 5:00 pm on T-1 day in OFS. Share allocations will be price-first or pro-rata.

The settlement company charges a 100% cash margin from non-institutional investors.

The OFS may be withdrawn before its proposed opening. In this case, a cooling-off period of 10 trading days will occur before re-offering.

OFS for sale of units of REITs and InvITs by promoters or promoter group entities and other unitholders is only permitted in publicly offered and listed REITs and InvITs. The new rules will take effect on February 9.