The regulator is learnt to have found out that some large institutional investors and high net worth individuals were putting in bids only to inflate the subscription numbers and not with the intention of getting allotments.
According to a circular released on Monday, the market regulator said IPO applications should only be processed if there are supporting funds in an investor’s bank account.
“Stock exchanges shall accept the ASBA applications in their electronic book building platform only with a mandatory confirmation on the application monies blocked,” Sebi said in a circular.
The regulator said this rule shall apply to all categories of investors including retail, qualified institutional buyers (QIBs), non-institutional investors (NIIs) and other reserved categories. Public issues opening on or after September 1 must follow the new norm. Currently, funds from all these categories are deducted based on ASBA but in practice, QIB and NII or HNI categories are allowed some leeway when it comes to bidding.
Sebi observed that in some of the recent IPOs certain applications had to be cancelled as bidders didn’t have sufficient funds in their bank accounts.
Currently, bidding for IPOs is done through the application supported by blocked amount(ASBA) framework whereby money leaves an investor’s bank account only after the shares are allotted. Under an earlier system, money used to get deducted at the time of applications and used to get refunded in case of non-allotment of shares.
Market players said Sebi’s latest directive will give a more accurate picture of IPO subscription numbers and will encourage only serious bidders to apply.
The regulator has given three months to market intermediaries for “appropriate systemic and procedural arrangements” to implement the circular.