New rules on mode of payment for IPOs spark uproar in industry

MUMBAI: Few days after the new rules on the mode of payment for initial public offerings (IPOs) kicked in, various market participants are worried about the challenges it could pose to investors and intermediaries. Over 60 representatives from investment banks, broking firms, registrars and syndicate banks met market regulator Sebi on January 11 expressing their concerns on implementing the new diktat.

Last year, to streamline the process of public issue of equity shares Sebi made it mandatory for all investors to use the Application Supported by Blocked Amount (ASBA) facility for making payment by just writing their bank account numbers and authorising banks to make the payment in case of allotment by signing the application forms, thus doing away with the need to write cheques. About 70 per cent of the applications by retail investors were done through cheques.

If an investor makes an application through the ASBA route -- the applicant’s bank account doesn’t get debited until shares are allotted to him -- it still has some challenges, say brokers. In 2008, Sebi introduced the ASBA mechanism.

"Sebi mandating ASBA and reducing the time required to list shares after an IPO to six days, the combination of these two are posing challenges for market participants. Earlier, banks had four days to block the amount and given the confirmation certification. Now, they have only one day," said a banker in know of the development.