New Sebi Regime For Ipos To Eliminate Banksrole, Refunds Refunds

The Securities and Exchange Board of India is set to revolutionise the way in which new issues are hawked by involving the secondary market network of stock exchanges, clearing houses and brokers in the process. The Sebi board will discuss the proposed changes during its forthcoming meeting in mid-August.

A detailed presentation on the changes to be incorporated was made at the Sebi office in Mumbai yesterday. The Sebi brass, representatives of the National Stock Exchange and the Over-The-Counter Exchange of India, and various registrars participated in the presentation.

The proposed changes are rooted in the recommendations of the Dave Committee report on capital markets. Sebi plans to eliminate the role of banks, cut issue costs and do away with the problem of refunding issue proceeds in case of failure of the issue. It also plans to drastically reduce the time for completion of an issue. The scheme will also complement the book-building process of selling an issue.

 

In the new scheme of things, the issue will first be hawked by brokers of the countrys stock exchanges, who will then give feedback on clients, based on demand, to the nodal exchange the regional stock exchange of the issuer.

The nodal exchange and the issuer will then decide on the basis of allotment. Thereafter, the brokers will send in the funds to the various exchanges. The exchanges, in turn, will pass on the funds to the nodal exchange. Thereafter, the nodal exchange will open a bank account and deposit the issue proceeds in it.

The brokers will have to work out with their clients how their position would be safeguarded in case the client does not honour his commitment to the broker. ``The broker, if he so wishes, can charge a margin from the client, a senior Sebi official told Business Standard.

After the allotment is decided, the registrars will get into the picture and send the shares to the various countrywide clearing houses of the stock exchanges. The exchange clearing houses will then distribute the shares to the brokers of the exchanges, thereby eliminating the problem of delay in despatching the certificates. ``The registrars are also very upbeat about the proposal, said Sebi officials.

The biggest benefit of the proposed changes will be that since there is no question of sending in application money before allotment, the chances of misuse of funds and other associated problems will be effectively done away with. Besides, if the issue fails to garner the stipulated 90 per cent subscriptions, there is no question of refunding money since the application money will not have been collected in the first place. The role of banks will also be restricted only to the one account opened by the nodal stock exchange for depositing issue proceeds.

Sebi officials point out that the introduction of the stock exchange mechanism will substantially reduce the cost of primary issues, while simultaneously eliminating the problem of corporates using issue proceeds before the completion of the issue process.PRIMARY CHANGES

Stock exchanges, clearing houses to be involved in primary issue process

Brokers network to hawk IPOs

Nodal stock exchange to open bank account for issue proceeds

Role of banks to be eliminated

Clearing houses to distribute shares after allotment

Refunds, associated problems to be done away with eliminated