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Bull on mouseback

In sweeping market reform, panel proposes to take IPOs entirely online, reports Arun Kumar.

business Updated: Jan 28, 2008 01:29 IST
Arun Kumar

The securities and Exchange Board of India (SEBI) plans to make the process of applying for initial public offers (IPOs) of shares easier for investors.

What are the changes
*
Investors now put in their money for IPOs and wait for three weeks to get allotment or refund. They also need to fill up complex paper application forms.
* A SEBI panel now proposes to cut the time period to five days and make applications in simple formats online, significantly
easing the IPO application headaches.

Respite to investors, who commit funds to IPOs with no guarantee of quick allotment or refund, may come in the form of allotment time being cut from the present 21 days to five days.

A SEBI panel will also propose that the process be moved online, to ensure speedy clearance of applications.

The measures assume significance after the Reliance Power issue to raise Rs 10,250 crore, which threw up questions on whether bankers and promoters had the time to juggle investors’ money in the flood of IPOs hitting the market.

Highly placed SEBI sources said that the regulating body believes that online applications should replace existing application forms.

“With demat accounts having all relevant information and bank accounts going online, it is possible to make applications using demat account numbers and online payment instructions,” a member of the 19-member primary market committee of SEBI told HT.

The committee is scheduled to meet again early in February and take a final decision on recommendations to be forwarded to the SEBI board.

However, these proposals may not be implemented soon enough to affect the spate of forthcoming IPOs, with new forms expected to come into effect from March or April.

How it Affects you
*Applying for IPOs will be a lot easier. Instead of filling up cumbersome paper application forms, you can fill in simple info online and get a decision on allotment or refund in just five days instead of the current three weeks.
*A SEBI panel now proposes to cut the time period to five days and make applications in simple formats online, significantly easing the IPO application headaches.

Thirty-five companies plan to enter the market by this March to raise around Rs 20,000 crore.

Physical applications, particularly in mega issues, comprise detailed application forms. The proposals aim to involve minimal information, similar to what is done in secondary market trading, the committee member added.

The committee is also expected to suggest that institutional investors should invest the entire amount at the time of application, unlike the current practice of putting in only 10 per cent at the of application and the balance during allotment.

The proposal aims to do away with the current discriminatory practice under which retail investors are expected to put in the entire amount at the time of application.

“There were instances where some institutional investors put in applications equal to the size of the issue. This fuels market perception and creates a misleading impression that the issue is subscribed many times over, which is neither correct nor required,” said the member.

“Reliance Power’s Rs 10,200-crore issue, which was oversubscribed 72 times sucked out Rs 1.13 lakh crore from the system and has locked it for around 21 days. It created an artificial liquidity crunch, which resulted in huge volatility in the secondary market,” said a senior SEBI official.