SEBI tweaks IPO bidding norms to curb misuse

The Securities and Exchange Board of India (SEBI) has tweaked the framework for bidding in an initial public offer (IPO) to ensure that only genuine entities put in bids in a public issue.

In a circular issued on Monday, the capital markets regulator said that applications will be accepted only if it is backed with the required amount of money in the bidder’s bank account.

The SEBI move comes close on the heels of the government highlighting the fact that institutional and high net worth individuals are exploiting the regulatory framework for IPOs to put in bids to only inflate the subscription numbers and not with a genuine intent of bidding for shares of the company.

While all applicants in an IPO have to put in bids using ASBA (Application Supported by Blocked Amount), the current framework allows qualified institutional buyers (QIBs) and non-institutional investors (NIIs) to only put in the bids with the funds being blocked a day or two after the bids have been submitted.

Some of the recent IPOs, including that of Life Insurance Corporation of India (LIC), saw many bids in the QIB and NII categories getting rejected due to lack 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.

Simply put, no category of investor – institutional, retail or high net worth individual – will be able to apply in an IPO unless the requisite amount of fund to back the application is not blocked in the respective bank account.

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