Coming soon: the e-IPO
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The market regulator Securities and Exchange Board of India (SEBI) has said it aims to reduce the time period between closing of an initial public issue and commencement of trading at the stock exchanges to five-six days. Currently it takes 12 days.
“The SEBI board, in its meeting on November 19, approved a discussion paper for using the secondary market mechanism for issuance of shares in a initial public offer (IPO) through e-IPO. Our aim is to bring down T+12 to T+5 or T+6 for listing,” SEBI Chairman U K Sinha told presspersons on Saturday. T is the closing date of an issue and 'T plus number of days' is when the shares sold through an IPO become available for trading.
‘e-IPO’ is a mechanism where the investment in a public offering can be done online without signing any documents. This has the potential to reduce costs as well as time. Though the concept of an e-IPO has been in the pipeline for some time, a formal decision could not be taken due to various regulatory issues.
In fact, the SEBI board was informed on November 24, 2011, that implementing an e-IPO would require amendments to the Companies Act dispensing with the requirement for an investor to “agree in writing” since no application form submission was envisaged, as the allotment would be in a demat account. The MCA (Ministry of Corporate Affairs) has held the view that in the case of subscription of to-be listed shares in demat form, it may not be necessary for an investor to “agree in writing”.
Sinha informed that based on the views received in the discussion paper, a formal proposal will be placed before the SEBI board to introduce the concept of the e-IPO. IPO is the process by which a company approaches the market for the fist time to sell shares. Though there is a shorter process for companies to offer shares to investors once it is listed through offer for sale (OFS) through the stock exchange mechanism, there is no easy process for IPO. Even OFS can be used only by the 200 top companies in terms of market capitalisation.
Sinha said there is already a provision for reserving at least 10 per cent of shares offered to retail, the companies may give more. It can also organise roadshows in advance to attract retail participation. It may be noted that on June 19, the SEBI board decided that a minimum 10 per cent of the issue size would be reserved for retail investors i.e. for investors bidding for amounts less than Rs. 2 lakh. In case this percentage is not fully utilised, the unutilised portion may be offered to other investors. It may be decided that the seller of shares may offer a discount to retail investors in accordance with the framework specified from time to time. (The Hindu Business)
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