A litany of new measures initiated by the market regulator will create transparency in the entire IPO process and benefit investors
Market regulator Securities and Exchange Board of India (SEBI) has come up with a litany of new measures aimed at making the life of the investors easy and streamline the entire IPO (initial public offer).
The new measures, announced on 16 March 2021, puts in place a reconciliation process and a mechanism to compensate investors. The new measures would be in force for all IPOs opening from 1 May 2021 onwards.
It is aimed at addressing issues generally associated with delayed receipt of the mandate by investors for blocking of funds due to systemic issues at intermediaries and failure to unblock the funds in cases of partial allotment by the next working day from the finalisation of Basis of Allotment (BOA), the SEBI circular stated.
Other issues to be addressed by the new guidelines include Self Certified Syndicate Bank (SCSB) blocking multiple amounts for the same Unified Payment Interface (UPI) application and SCSB blocking more amount in the investors account than the application amount.
SCSBs are required to identify the nodal officer for IPO applications processed through UPI as a payment mechanism and submit all related information in details to SEBI within seven working days. SCSBs would have to host the details of nodal officers on SEBI's website.
Moreover, investors would now receive SMS alerts for mandate block and unblock from SCSBs to ensure timely information to investors. For ease of doing business, sponsor banks would host a web portal for intermediaries from the date of IPO opening till the date of listing. It must have details of statistics of mandate blocks/unblocks, the performance of apps and UPI handles, down-time/network latency (if any) across intermediaries and any such processes having a bearing on the IPO bidding process.
The facility of re-initiation provided to syndicate members would preferably be allowed only once per bid/batch and as deemed fit by the concerned stock exchange after bid closure time. This the market regulator said would avoid duplication.
As for the cancelled or withdrawn applications, SEBI said that Registrars To an Issue (RTI) would have to submit the details of cancelled or withdrawn applications to SCSB's daily within 60 minutes of bid closure time from the issue opening date till issue closing date by obtaining the same from bourses.
It would be mandatory for the SCSBs to unblock such applications by the closing hours of the bank day and submit the confirmation to lead managers. In a bid to do away with the complaints received about delayed unblock, SEBI has now laid down a process whereby sponsor banks need to execute the online mandate revoke file for non-allottees or partial allottees on BOA+1.
Thereafter, any pending applications for unblock would be submitted to RTA, not later than 12:30 pm on BOA+1. After this, RTI would submit the bank-wise pending UPI applications for unblock to SCSB's along with the allotment file, not later than 2:00 pm on BOA+1. The allotment file would include all applications about full-allotment/partial-allotment/non-allotment/cancelled/withdrawn/deleted applications.
According to the new guidelines of SEBI, SCSB would need to ensure that the unblock for non-allotted/partial-allotted applications is completed by the closing hours of bank day on BOA+1. The SCSB is required to submit the confirmation on the same to lead managers and RTA, not later than BOA+1. SCSBs failing to provide the details as per the prescribed format would be liable to face appropriate action under the securities laws.
SEBI has also made provisions to provide an efficient redressal mechanism for investors' complaints about block or unblock of funds and to avoid any opportunity loss, by incorporating a compensation structure whereby SCSBs would have to pay to investors ₹100 per day or 15 per cent per annum of the application amount, whichever is higher. The compensation amount must be given to the investor immediately on the date of receipt of the complaint.
The onus would be on the lead managers to ensure that the payment of processing fee or selling commission to the intermediaries are released only after ascertaining that no complaints regarding block/unblock of UPI bids are pending after receiving the confirmation on completion, SEBI said.