Sebi looks to clear the way for e-IPOs - Livemint
Sebi looks to clear the way for e-IPOs - Livemint
Mumbai: India's capital market regulator is set to propose a raft of changes in existing norms to clear the way for initial public offerings (IPOs) in the electronic mode, or e-IPOs, which will likely result in wider investor participation in first-time share sales and lead to better price discovery.
The primary market advisory committee (PMAC) under the Securities and Exchange Board of India (Sebi) proposes to give brokers and depository participants (DPs) greater powers and authorize them to upload bids for IPO shares from investors on a real-time basis after accepting applications with the required payments, said two people familiar with PMAC discussions.
At present, applications for IPOs can be uploaded on a real-time basis only through ASBA (application supported by blocked amount); only self-certified syndicate banks are authorized to manage and offer ASBA, which allows application money to stay in an investor's bank account until the shares are allotted. The money is blocked in the account so that the investor can't use it.
An e-IPO essentially enables a company selling shares for the first time to the public to list them by using the stock exchange platform on which investors submit bids for the offered shares, which can be uploaded on a real-time basis. This would be similar to what is currently done in secondary market issuances such as offer-for-sale and institutional placement programme.
"To create an enabling environment for e-IPOs, the main proposal is to enable brokers and DPs to upload investor bids on a real-time basis on the stock exchanges, akin to secondary market issuances. This will not only save time and money, but also enhance the chances of greater participation by investors in IPOs, considering the overall spread of broker networks in the country," one of the two people cited above said.
Once the new proposals by PMAC are accepted by the Sebi board, brokers and DPs, too, will be able to use their nationwide network to collect IPO applications and upload investors' bids electronically on a real-time basis.
Following a board meeting on 19 November, Sebi agreed to frame regulations for using secondary market infrastructure for public issuances after going through a public consultation process.
"Making the entire IPO process electronic will also ensure greater safety and better price discovery due to chances of more number of investor bids. The recommendations are also aimed at bringing down the IPO timeline from T+12 to T+6. The proposals have been made and Sebi will put out a consultation paper on e-IPOs, based on the recommendations soon," the second person said.
T+12 in an IPO means that the shares are listed on the exchange in 12 days from the day the issue opens for subscription from the public.
Both the people spoke on condition of anonymity as the new norms haven't been finalized yet.
If brokers are involved in the process, the reach of an IPO can be enhanced, although it needs to be seen what criteria Sebi puts in place for brokers to be part of the process, said Amit Majumdar, executive director and chief strategy officer of Angel Broking Pvt. Ltd.
"In terms of connect and reach, brokers are better equipped than bankers. The connect of the broker with investors is more engaging. There is already a significant chunk of investor money lying with brokers in the form of credit balance. This captive balance can also be used in IPOs," said Majumdar.
There were 9,064 registered brokers on 31 October, according to Sebi data. There are 198 registered merchant bankers.
At present, application forms for bidding for IPO shares are available with syndicate members, collection centres, brokers to the issue, the stock exchange website and bankers to the issue.
Typically, brokers and DPs, while accepting forms from investors, take the investors' cheques and send them for clearing. Only after the cheques are honoured are the bids sent to the bankers handling the issue, who update the bids in the book-building process. The entire process takes more than a day.
PMAC has proposed that to make the new process feasible, brokers and DPs will be authorized to either collect payments in cheques from IPO investors in advance, even before the opening of the issue or debit the required amounts from the balances kept by investors with brokers or bank accounts of investors with which the brokers have a tie-up. These market intermediaries can also collect payments in demand drafts and cash during the days when the IPO issue is open, according to the proposal.
Investors will continue to have an option to invest in IPOs through ASBA. To begin with, all brokers may not be eligible to use the new powers. Following the release of the draft guidelines after the consultation paper, Sebi will ask stock exchanges to formulate and announce the bye-laws and eligibility criteria for brokers and DPs.
"The brokers and DPs will have to ensure that they have a real-time connectivity with the exchanges during e-IPOs," said the second person cited above.
Under the new norms, though brokers and DPs will be given more powers, which will potentially improve their incomes, the onus of payments against the bids will be on these intermediaries and any shortfall in payment after uploading investor bids will have to be borne by them.
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Mumbai: India's capital market regulator is set to propose a raft of changes in existing norms to clear the way for initial public offerings (IPOs) in the electronic mode, or e-IPOs, which will likely result in wider investor participation in first-time share sales and lead to better price discovery.
The primary market advisory committee (PMAC) under the Securities and Exchange Board of India (Sebi) proposes to give brokers and depository participants (DPs) greater powers and authorize them to upload bids for IPO shares from investors on a real-time basis after accepting applications with the required payments, said two people familiar with PMAC discussions.
At present, applications for IPOs can be uploaded on a real-time basis only through ASBA (application supported by blocked amount); only self-certified syndicate banks are authorized to manage and offer ASBA, which allows application money to stay in an investor's bank account until the shares are allotted. The money is blocked in the account so that the investor can't use it.
An e-IPO essentially enables a company selling shares for the first time to the public to list them by using the stock exchange platform on which investors submit bids for the offered shares, which can be uploaded on a real-time basis. This would be similar to what is currently done in secondary market issuances such as offer-for-sale and institutional placement programme.
"To create an enabling environment for e-IPOs, the main proposal is to enable brokers and DPs to upload investor bids on a real-time basis on the stock exchanges, akin to secondary market issuances. This will not only save time and money, but also enhance the chances of greater participation by investors in IPOs, considering the overall spread of broker networks in the country," one of the two people cited above said.
Once the new proposals by PMAC are accepted by the Sebi board, brokers and DPs, too, will be able to use their nationwide network to collect IPO applications and upload investors' bids electronically on a real-time basis.
Following a board meeting on 19 November, Sebi agreed to frame regulations for using secondary market infrastructure for public issuances after going through a public consultation process.
"Making the entire IPO process electronic will also ensure greater safety and better price discovery due to chances of more number of investor bids. The recommendations are also aimed at bringing down the IPO timeline from T+12 to T+6. The proposals have been made and Sebi will put out a consultation paper on e-IPOs, based on the recommendations soon," the second person said.
T+12 in an IPO means that the shares are listed on the exchange in 12 days from the day the issue opens for subscription from the public.
Both the people spoke on condition of anonymity as the new norms haven't been finalized yet.
If brokers are involved in the process, the reach of an IPO can be enhanced, although it needs to be seen what criteria Sebi puts in place for brokers to be part of the process, said Amit Majumdar, executive director and chief strategy officer of Angel Broking Pvt. Ltd.
"In terms of connect and reach, brokers are better equipped than bankers. The connect of the broker with investors is more engaging. There is already a significant chunk of investor money lying with brokers in the form of credit balance. This captive balance can also be used in IPOs," said Majumdar.
There were 9,064 registered brokers on 31 October, according to Sebi data. There are 198 registered merchant bankers.
At present, application forms for bidding for IPO shares are available with syndicate members, collection centres, brokers to the issue, the stock exchange website and bankers to the issue.
Typically, brokers and DPs, while accepting forms from investors, take the investors' cheques and send them for clearing. Only after the cheques are honoured are the bids sent to the bankers handling the issue, who update the bids in the book-building process. The entire process takes more than a day.
PMAC has proposed that to make the new process feasible, brokers and DPs will be authorized to either collect payments in cheques from IPO investors in advance, even before the opening of the issue or debit the required amounts from the balances kept by investors with brokers or bank accounts of investors with which the brokers have a tie-up. These market intermediaries can also collect payments in demand drafts and cash during the days when the IPO issue is open, according to the proposal.
Investors will continue to have an option to invest in IPOs through ASBA. To begin with, all brokers may not be eligible to use the new powers. Following the release of the draft guidelines after the consultation paper, Sebi will ask stock exchanges to formulate and announce the bye-laws and eligibility criteria for brokers and DPs.
"The brokers and DPs will have to ensure that they have a real-time connectivity with the exchanges during e-IPOs," said the second person cited above.
Under the new norms, though brokers and DPs will be given more powers, which will potentially improve their incomes, the onus of payments against the bids will be on these intermediaries and any shortfall in payment after uploading investor bids will have to be borne by them.
Livemint
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