IPO subscriptions: Process only money-backed ASBA applications, says Sebi

Latest directive follows instances during LIC's IPO where certain applications had to be cancelled as they didn't have sufficient funds in bank accounts

The Securities and Exchange Board of India (Sebi) on Monday said IPO applications should only be processed if there is supporting funds in an investor’s bank account.

“Stock exchanges shall accept the ASBA applications in their electronic book building platform only with a mandatory confirmation on the application monies blocked,” Sebi said in a circular.

ASBA, which stands for application supported by blocked amount, is a facility whereby money leaves an investors bank account only after shares are allotted. Under an earlier system, money used to get deducted at the time of applications and used to get refunded in case of non-allotment of shares.

Sebi’s latest directive follows instances during Life Insurance Corporation’s (LIC’s) IPO where certain applications had to be cancelled as they didn’t have sufficient funds in the bank accounts.

“The circular shall be applicable for all categories of investors which is retail, QIB, NII and other reserved  categories  and  also  for  all  modes  through  which the applications are processed,” Sebi has said.

Market players said Sebi’s latest directive will give a more accurate picture of IPO subscription numbers and will encourage only serious bidders to apply.

The regulator has given three months’ time to market intermediaries for “appropriate systemic and  procedural arrangements” to implement the circular.