What is OFS ? How to Bid, Important points, Pros & Cons 2021

A company’s aims may require more funding at times or they need to meet the regulations of SEBI regarding shareholding. These are when such firms can choose to offer an OFS. Do you know what is OFS? If not, let’s go through it in depth with examples and features.

What is OFS?

Full form of OFS is offer for sale. It is an easier mechanism for public company promoters to sell their stocks and decrease their shareholding in a transparent way using the Exchange’s bidding system. SEBI initially announced the OFS Mechanism to the market in 2012.

Previously, the OFS category authorized only listed company Promoters/Promoters’ Group Entities to participate as “Sellers” to dilute/offload their ownership to attain a minimum public shareholding of 25%.

The category has now been expanded to include non-promoters of qualified companies that own at least 10% of the firm’s stock.

Allocation

• To make it simpler for publicly traded company promoters to reduce their holdings and meet the minimum public shareholding requirement.
• If the order/bid falls below the floor price, no allocation will be made.
• Mutual funds and insurance companies will get at least 25% of the equity shares, subject to allocation methodology.
• Except for mutual funds and insurance firms, no single buyer shall be given more than 25% of the amount of the offer for sale.

Settlement

The settlement will be done on a trade-for-trade basis. Settlement will take place on T+1 day for non-institutional orders/bids and institutional orders with a 100 percent margin. If institutional investors place orders/bids with no margin, they will be settled according to secondary market regulations.

Other Important Points

• From 9.15 a.m. to 2.45 p.m., clients can place an OFS order.
• Orders in OFS can be changed at any time.
• The bid will not go ahead if the OFS order is denied by the exchange for any cause.

How to Bid for Offer For Sale?

In order to purchase stock in an OFS, a buyer must submit a bid. The firm establishes a ‘floor price.’ Buyers are not allowed to bid under the floor price. After the bids are submitted, the shares are assigned to the various buyers.

There is no minimum age requirement to take part in an OFS. In the OFS mechanism, a purchaser can bid for a single stock.

Originally published at https://profitmust.com on June 26, 2021.