March 7, 2010 : Institutional investors in public offers will no longer have the luxury of paying just 10% of the bid amount at the time applying to issues, from May 1 this year. The Securities & Exchange Board of India (Sebi), on Saturday said these investors will have to pay the entire bid amount during submission of application in initial and follow-on public offers, in-line with the practice followed by other investor segments. “This disparity between institutions and other investors was one of the issues under consideration before Sebi,” chairman CB Bhave said in a press conference after a Sebi board meeting. “Our efforts to reduce the time gap between the date of issue closure and the date of listing are going on and our aim is to bring this down to one week by the end of this calendar year,” he said. But the move could hinder institutional investors from investing in public issues, unless the application supported by blocked amount (ASBA) facility - where a public issue applicant’s money leaves his bank account only after the share allotment - is extended to them from May 1. Currently, this banking channel is only available to retail, corporate and wealthy investors. In the absence the ASBA facility, these investors, who invest millions of dollars in public issues, will have to lock-in the entire application money for the time between the closure of a public issue and its listing, which is roughly 17-21 days. Market participants expect Sebi to extend the ASBA facility to institutional investors before May 1. According to Dharmesh Mehta, MD & head equities at Enam Securities, the new regulation will require a complete change in investor mindset, as it is the end of an era of book-building being done on the first day of the issue opening.

Physical delivery of shares
“THE only concern is that movement of money will become much more difficult. The regulator should also increase the time till when the book remains open so as to allow institutional investors to be able to revise their bids if necessary. The margin money should also come back faster,” Mehta said.

    Markets participants feel Sebi’s idea of reducing the period between the date of issue closure and of listing to seven days would be possible only if ASBA is made mandatory for all applications.

    “It is not easy because even if 5% applicants in an issue go through the physical route, the entire process would take 15-21 days,” said a head of a share registry firm. Announcing the other decisions made at Saturday’s board meeting, Mr Bhave said it has given the in-principle decision to enable physical delivery of shares in futures and options trading, but did not disclose when it plans to implement it.

    “The board decided that we would discuss with the stock exchanges and institute a proper mechanism for physical delivery in the derivatives markets,” Bhave said. The Sebi board also gave a goahead to stock exchanges to launch futures and options contracts of up to five years and derivative contracts on the volatility index. Sebi also made a change to rules in share allotment to employees of subsidiaries of a company that is tapping the primary market. Bhave said employees of a subsidiary of issuer companies, which maintain consolidated accounts, can apply in the quota reserved for them.