To ensure that only genuine entities participate in a public issue, capital markets regulator Securities & Exchange Board of India (SEBI) tightened the framework for bidding in an initial public offering (IPO).
In a circular issued on May 30, 2022, SEBI said that the IPO applications should be processed only if there is a required amount of money in the investor’s bank account.
“The ASBA applications in Public Issues shall be processed only after the application monies are blocked in the investor’s bank accounts,” the SEBI circular said.
“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.
SEBI’s new circular comes after it was seen that the institutional investors and high net worth individuals (HNI) were reportedly exploiting the regulatory framework and placing bids for an IPO only to push up the oversubscription numbers without a genuine intent to apply for the shares in the IPO.
According to current SEBI norms, all IPO applicants have to put in bids using Application Supported by Blocked Amount (ASBA). However, some leeway is allowed to Qualified Institutional Buyers (QIB) and Non-Institutional Investors (NII) or HNI categories as their funds are blocked a day or two after the bids have been submitted.
As per reports, some recent IPOs including that of Life Insurance Corporation of India (LIC) witnessed many bids under the NII and QIB categories getting rejected because of a lack of funds in the bank accounts of the applicants.
The new SEBI rules shall be applicable for public issues opening on or after September 1, 2022. The circular shall be applicable for all categories of investors viz. Retail, QIB, NII and other reserved categories and also for all modes through which the applications are processed, SEBI said.
The regulator has also advised all intermediaries and market infrastructure institutions to ensure that the appropriate systemic and procedural arrangements are made within three months.
What is Book Building?
As per SEBI guidelines, Book Building is a process undertaken by which a demand for securities proposed to be issued by a company is elicited and built up and the price for such securities is assessed for the determination of the quantum of such securities to be issued by means of a notice, circular, advertisement, document or information memoranda or offer document.
What are the different types of investors in an IPO?
There are different categories of IPO investors. A reserved quota or percentage of shares is fixed for each category. These include Retail Individual Investors (RII), Non-institutional bidders (NII), Qualified Institutional Bidders (QIB), Foreign Institutional Investors (FII) and Anchor Investors.
Who is a Qualified Institutional Buyer (QIB)?
Qualified Institutional Buyers are institutional investors with expertise and financial muscle to invest in the capital markets carefully and strategically. 50% of the total offer is reserved for this category and SEBI registration is required to bid under this category.
QIBs include public financial institutions, banks, mutual funds, foreign institutional investors registered with SEBI, venture capital funds, state industrial development corporations, Provident Funds and Pension Funds with a minimum corpus of Rs 25 crore each, insurance companies, etc.
Can an investor revise his bids for an IPO application?
Yes, an investor is allowed to revise his bids. He can revise bided quantity and price for an IPO anytime if the issue is still open for subscription.
What is ASBA?
ASBA is “Application Supported by Blocked Amount”. It is a framework designed by SEBI for subscribing to an issue. ASBA is an application that contains an authorization to block the application money in the bank account for subscribing to an issue. The IPO applicant’s money gets blocked in the bank account, but the account does not get debited until the shares are allotted to them.