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Sebi proposes doing away with proportionate allotment of IPOs

The PMAC said any public offering should aim to provide as diverse offerings as possible with equitable opportunity at retail and non-institutional level.

Published: 05th October 2021 03:57 AM  |   Last Updated: 05th October 2021 10:00 AM   |  A+A-

Sebi building, Securities and Exchange Board of India

Sebi building (File Photo | PTI)

By Express News Service

NEW DELHI: It looks like the securities market regulator has finally paid heed to the difficulty that small investors face in getting the allocation of initial public offers (IPO) of equity shares.

The Securities and Exchange Board of India (Sebi) has proposed a few changes in the way IPO allocations are made to HNI investors to tide over this problem.

The Primary Markets Advisory Committee (PMAC) has proposed dividing the HNI category into two sub-categories — one with an application size of Rs 2-10 lakh and another for application above Rs 10 lakh.

It suggests that one-third of the IPO be reserved for investors in the Rs 2-10 lakh category and rest for the second category.

It also recommends discontinuation of the proportionate allotment in case of HNI category and introduction of the draw of lots allotment as is currently applicable for retail investors.

The proportional allocation creates incentives to make application of higher bid amount in this category.

“Applicants in HNI category are reportedly leveraging for making applications of higher bid amounts which results in higher oversubscription in this category,” the committee said. 

The panel also observed that as a percentage, the number of IPOs with more than 10x subscriptions is increasing consistently for the last four years.

During this period, it noted that the range of oversubscription in HNI category is also increasing consistently from the maximum of 195 times in 2018-19 to a maximum of 928 times in 2021-22 (till Sept 28, 2021).

The PMAC said any public offering should aim to provide as diverse offerings as possible with equitable opportunity at retail and non-institutional level.

The committee also proposed that the price band of all public issues should have 5% difference between the upper price and floor price, as it fears that a narrow price band presents an opportunity to an issuer company to camouflage a fixed price issue as a book built issue.



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