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Sebi tweaks IPO bidding rules to plug loopholes, applications only be processed if money blocked in bank account

The Sebi is believed to have found out that some large institutional investors and HNIs were putting in bids only to inflate the subscription numbers.

ET Now Digital

Updated May 31, 2022, 10:28 IST

Sebi's new norms will be applicable for public issues opening on or after Sept 01, 2022.

New Delhi: Markets regulator Sebi has modified the initial public offering rules in an attempt to ensure that only authentic entities participate, mentioning that only those applications in public offers in which the supporting money is blocked in investors’ bank accounts would be uploaded onto the exchanges’ platform and counted as valid.

The Securities and Exchange Board of India (Sebi) is believed to have found out that some large institutional investors and high net worth individuals were putting in bids only to inflate the subscription numbers without desire for allotment, ET reported.

Further, the measures rolled out by the regulator are expected to cut the menace of fake applications, which were especially seen in a large number of recent IPOs.

As per a circular issued on Monday, Sebi said IPO applications should only be processed if there are required funds in an investor’s bank account.

“Stock exchanges shall accept the ASBA (application supported by blocked amount) applications in their electronic book building platform only with a mandatory confirmation on the application monies blocked,” Sebi said in a circular.

Sebi said this rule shall apply to all categories of investors including retail, qualified institutional buyers (QIBs), non-institutional investors (NIIs) and other reserved categories.

This circular shall be applicable for public issues opening on or after September 01, 2022. All stakeholders involved in the process are advised to take necessary steps to ensure compliance with this circular. Merchant bankers shall coordinate with all stakeholders in this regard, it added.

At present, funds from all these categories are deducted based on ASBA but in practice, QIB and NII or HNI categories are allowed some flexibility when it comes to bidding.

Sebi noted that in some of the recent public listings certain applications had to be rejected as bidders didn’t have adequate funds in their bank accounts. In the Rs 21,000 crore state-run insurance behemoth LIC IPO, about 20 lakh applications were cancelled, mostly for non-authorisation of ASBA through UPI mode.

Market watchers are of the view that the regulator’s new norms will give a true picture of IPO subscription numbers and will encourage only serious bidders to apply.

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