SEBI drafts no refund IPO guidelines

In a bid to eliminate the complaints of retail investors- who invest in initial public offering (IPO) - for not receiving their refunds on time after rejection of their bid, the market regulator Security and Exchange board of India (SEBI) on Wednesday has issued a circular to market intermediaries informing its move of making an alternative guideline for IPO investing process. This new guideline would allow the investors to bid IPO without any transaction from bidders’ account until the finalisation of the allotment.

For making the process of IPO more convenient and swift, SEBI has decided to amend the SEBI (Disclosure and Investor Protection) Guidelines, 2000), which protects the interests of investors. In the new amendment, SEBI will add a supplementary process, which allows the investors to apply in IPO by using Application Supported by Blocked Amount (ASBA) system -a new system in which the investors’ bidding amount would be freeze by the banks through which investors are applying.

There will be no transaction from the bidders amount until the bidding company finally allot the IPO to the investor. If investor succeeds to get the IPO, the freeze amount would be transacted to the bidding company and if fails, the amount would be immediately release as the investors request to the bank.

But the ASBA facility will be applicable only for book-built public issues, which provide for not more than one payment option to retail individual investors.

The ASBA process will be offered by ‘Self Certified Syndicate Banks’ (SCSB) and for getting SCSB facility, the interesting banks will have to submit a certificate to SEBI in a prescribed format for enlisting its name in the SCSB list, which will be displayed on the SEBI website.

After listing on SCSB list, the further process begins in which the bank will have to enter into an agreement with the issuer and will be required to offer the ASBA facility to all its account holders for facilitating ASBA processing.

Illustrating the process of ASBA, SEBI said that in this ASBA process, the authorised SCSBs would accept applications from investors, block the amount of bidding and upload the details in the electronic bidding system.

“Banks will be liable for the investors’ grievances in terms of releasing the amount and transactions,” said SEBI.

SEBI has also directed the book running lead managers to intimate in writing the issue opening date to SCSBs. If the bidding company withdraws the IPO, the lead managers will have to inform the SCSBs.

Besides these, lead managers will also be responsible for providing details on allotment to each bank and after post-issue activities like allotment, refund, despatch and giving instructions to SCSBs, and continuously monitoring ‘redressal of investor grievances’ arising there from, as per SEBI directed.

The ASBA process will reduce lots of paper works, time, and peace of mind of investors as well as the process of IPO listing in the bourses as the stock lists in the bourses after refunding all the money of bidders, which will not proceed in this process.

But, SEBI has also clarified that for getting the facility of ASBA process, the bidders would have to bid at cut-off price and no revision would be allowed in it, however, they can withdraw their bid within period. Moreover, bidders will have to choose only one option- traditional or ASBA process.

Earlier, SEBI in May 2008, had initiated the process of introducing ASBA guidelines and approved ‘in principle’- the concept of making law on bank account as an alternative mode of payment in public/rights issues – in the wake of long-standing demand of retail investors.

The ASBA facility would come into effect after when few recognised banks would fulfill the SCSB criteria.