The Securities and Exchange Board of India (Sebi) has said that initial public offering or 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 recently said in a circular.
IPO New Rule Explained for the Investors
1) The regulator is learnt to have found out that 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. So, now ASBA (Application Supported by Blocked Amount) applications in public issues will be processed only after the application money is blocked in the investor’s bank accounts.
2)According to the circular, 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,” the regulator said.
3)Further, talking about who all this new rule will be applicable to, the regulator said that 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.
4)This new circular will be applicable to public issues (IPOs) opening on or after September 01, 2022.
5)As of now, bidding for IPOs is done through the application supported by the blocked amount(ASBA) framework. Here, the money leaves an investor’s bank account only after the shares are allotted.
Sebi’s latest directive follows instances during Life Insurance Corporation’s (LIC’s) IPO where certain applications had to be cancelled as they didn’t have sufficient funds in the 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 experts are of the view that the regulator’s new rule will give a true picture of IPO subscription numbers and will encourage only serious bidders to apply to a public offer.
In December 2009, Sebi prescribed the facility of ASBA in public issues for all categories of investors except Qualified Institutional Buyers (QIBs). In May 2010, the regulator extended the facility to QIBs. ASBA is an application by an investor containing an authorization to Self Certified Syndicate Bank (SCSB) to block the application money in the bank account, for subscribing to an issue. If an investor is applying through ASBA, his application money will be debited from the bank account only if his/her application is selected for allotment after the basis of allotment is finalized.