Markets regulator Sebi on Thursday abolished the requirement of a mandatory security deposit with the exchanges before a public issue in a bid to facilitate ease of doing business for issuer companies.

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The move will be applicable with immediate effect, the Securities and Exchange Board of India (Sebi) said in a circular.

Before this, any company that is looking to launch a public issue of equity shares has to deposit with the stock exchanges an amount equal to 1 per cent of the issue size. The deposit was returned to the company after the public issue.

"In order to facilitate ease of doing business to issuer company, the requirement to deposit 1 per cent of the issue size available for subscription to the public with the designated stock exchange by the issuer company under... Sebi (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations) has been dispensed with," Sebi said.

In February, the Securities and Exchange Board of India (Sebi) floated a consultation paper proposing that the requirement of 1 per cent security deposit for public or rights issues should be done away with.

Explaining the rationale behind the move, the regulator had stated that the requirement of 1 per cent security deposit was put in place for public/rights issues so that an issuer resolves investor complaints relating to the transaction such as for refund of application money, allotment of securities and dispatch of certificates.

However, considering various reforms and present framework for public or rights issues such as application through ASBA (Application Supported by Blocked Amount) UPI mode of payment, mandatory allotment in demat, among others, the concerns relating to post-issue investor complaints regarding refund of application money, non-dispatch of physical certificates does not arise, it had added.