With mandatory pre-trade allocation, Sebi to plug IPO-arbitrage in MFs

Foreign institutional investors might also need to adhere to proposed pre-trade allocations

The Securities and Exchange Board of India (Sebi) wants to plug the arbitrage play that mutual fund (MF) houses deploy during initial public offering (IPO) to benefit one scheme over another. To meet this end, the market watchdog wants to make pre-trade allocations mandatory for all institutional investors.  

“By not informing in advance, which scheme would get what allocation, there is a gap in the system that can be easily misused. Post-allocation, some fund managers can take their own call on which scheme should get the allotted shares, depending upon their view of the company,” said a senior executive of