SEBI Tweaks Share Sale Norms For IPOs, Says Process Only Money-Backed ASBA Applications

No category of investor - institutional, retail or high total assets individual - will be able to apply in an IPO except if the requisite amount of fund to back the application isn't obstructed in the respective bank account.

New Delhi: To ensure that only genuine entities put in bids in a public issue, the capital markets regulator Securities and Exchange Board of India (Sebi) on Monday said that the board has tweaked the framework for bidding in an initial public offer (IPO), as reported by Business Standard. “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 the latest circular issued on Monday.

The SEBI move comes close behind the government featuring the way that institutional and high total assets people are taking advantage of the administrative structure for IPOs to place offers to just blow up the subscription numbers and not with a real expectation of offering for shares of the company.

While all candidates in an IPO need to place in offers utilising ASBA (Application Supported by Blocked Amount), the ongoing structure permits qualified institutional buyers (QIBs) and non-institutional investors (NIIs) to just place in the offers with the assets being obstructed a little while after the bids have been submitted.
 
A portion of the new IPOs, including that of Life Insurance Corporation of India (LIC), saw many bids in the QIB and NII categories getting dismissed because of the absence of funds in the bank account of the applicant.

“The ASBA applications in Public Issues shall be processed only after the application monies are blocked in the investor’s bank accounts,” stated the Sebi circular issued on Monday.

“Stock Exchanges shall accept the ASBA applications in their electronic book building platform only with a mandatory confirmation on the application monies blocked,” it added.

In simple words, no category of investor - institutional, retail or high total assets individual - will be able to apply in an IPO except if the requisite amount of fund to back the application isn't obstructed in the respective bank account.

The new system would be applicable to all IPOs that open on or after September 1.