MUMBAI: In an attempt to ensure mid-sized investors do not get pushed out of public offers by very large investors, markets regulator Sebi on Monday proposed to segregate the high networth investor (HNI) portion in initial public offers (IPOs) into two parts.
Under the first sub-category within the overall HNI segment, only those investors who submit applications of between Rs 2-10 lakh will be allowed. Those investors who want to put in applications of more than Rs 10 lakh will be clubbed into the second sub-category.
Sebi has come out with a discussion paper on these proposals and have asked the public to offer their suggestions by October 20. Under the current system, anyone who wants to invest more than Rs 2 lakh falls in the HNI category during the bidding process in IPOs. Applications of up to Rs 2 lakh are considered to be from retail investors. Sebi feels very large applications also can create some extra risk for the market and hence the proposed changes.
Sebi also proposed that a third of the HNI portion in all IPOs should be reserved for investors belonging to the first sub-category, that is applications of between Rs 2 lakh and Rs 10 lakh. The balance two-third part within the HNI category will be for applications of above Rs 10 lakh.
Sebi also proposed that a minimum price difference of 5% should be set between the lower and the upper bands in an IPO. This means that in every IPO at the upper end, the price should be at least 5% more than the floor price. Currently there are no such bands. There have been IPOs in which the difference between the upper price and the lower (floor) price of the band has been as low as just Re 1. Sebi feels such narrow price difference defeats the purpose of bidding and makes IPOs as fixed price ones where the company and merchant bankers actually set the price instead of the investors applying in the offer.
Currently Sebi allows fixed price and book building methods in IPOs. Every book-building IPO should have a price band in which investors will be allowed to bid for the prices at which they want to buy the shares. Current rules also say that at the upper end of the band, the price should not be more than 20% of the lower price.
The discussion paper was published after detailed deliberations by the markets regulator’s Primary Market Advisory Committee (PMAC). “The objective of fair and transparent price discovery mechanism in a book-built issue appears to have been diluted over time due to evolving market practices,” the paper noted.
Under the first sub-category within the overall HNI segment, only those investors who submit applications of between Rs 2-10 lakh will be allowed. Those investors who want to put in applications of more than Rs 10 lakh will be clubbed into the second sub-category.
Sebi has come out with a discussion paper on these proposals and have asked the public to offer their suggestions by October 20. Under the current system, anyone who wants to invest more than Rs 2 lakh falls in the HNI category during the bidding process in IPOs. Applications of up to Rs 2 lakh are considered to be from retail investors. Sebi feels very large applications also can create some extra risk for the market and hence the proposed changes.
Sebi also proposed that a third of the HNI portion in all IPOs should be reserved for investors belonging to the first sub-category, that is applications of between Rs 2 lakh and Rs 10 lakh. The balance two-third part within the HNI category will be for applications of above Rs 10 lakh.
Sebi also proposed that a minimum price difference of 5% should be set between the lower and the upper bands in an IPO. This means that in every IPO at the upper end, the price should be at least 5% more than the floor price. Currently there are no such bands. There have been IPOs in which the difference between the upper price and the lower (floor) price of the band has been as low as just Re 1. Sebi feels such narrow price difference defeats the purpose of bidding and makes IPOs as fixed price ones where the company and merchant bankers actually set the price instead of the investors applying in the offer.
Currently Sebi allows fixed price and book building methods in IPOs. Every book-building IPO should have a price band in which investors will be allowed to bid for the prices at which they want to buy the shares. Current rules also say that at the upper end of the band, the price should not be more than 20% of the lower price.
The discussion paper was published after detailed deliberations by the markets regulator’s Primary Market Advisory Committee (PMAC). “The objective of fair and transparent price discovery mechanism in a book-built issue appears to have been diluted over time due to evolving market practices,” the paper noted.
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