Sebi’s public offer norms bat for retail investors

MUMBAI: In its endeavour to put retail investors' interest above that of other shareholders in listed companies, market regulator Sebi had to turn down requests from the divestment department of the government for suspension of trading in the stock of companies going for divestment a day before the secondary offering opened on the bourses. Sebi also turned down requests from brokers to allow their clients to transfer funds into the brokers' accounts ahead of opening of public offerings through the e-IPO route, Sebi sources said.

On Tuesday, Sebi made two significant changes in rules relating to public offerings. It said that for all offers for sale (OFS), divestment as well as by private sector companies, the notice should be given two banking days before the day of the offer. Earlier, such notice had to come two trading days before the day of the offer.

The divestment department had asked Sebi to suspend trading in the stock of a company after the notice for OFS is issued. "Under the new rules, a notice for OFS could be issued on a Friday, after the close of trading on that day and with Saturday being a banking day, the OFS could open on Monday," a Sebi official said. Usually, after the OFS notice is given, based on the closing price of stock just a day before the offer opens, the price band for the issue is decided.

There are instances where soon after the OFS notice was issued, the stock was hammered on the bourses. One set of investors argued that such a slide was in anticipation of more supply of stocks of the company post-OFS, while another set argued that it was mostly the handiwork of operators who hammered the stock before the OFS so that that they could buy it in the offer at a lower price. Since promoters want a higher price in the OFS, they do not like the stock price to fall just before the price band is decided.

This was the reason the divestment department wanted trading in the stock going for divestment to be suspended after the OFS notice is issued. "But a suspension of trading in the stock will be detrimental to the interest of those non-promoting shareholders who want to exit fearing additional supply of the stock. That's why Sebi did not agree to the divestment department's requests," a Sebi source said.

In reducing the timeline for maiden offerings through the e-IPO route too, there was pressure from the broking community on the regulator arguing that for faster closure of an offer, applicants in IPOs should transfer funds to brokers who will act as aggregators for them and then apply in the offering. e-IPO is a paperless public offering process that will halve the time for listing of new companies to six days after closure of the IPO. The process will also lower the risks associated with IPOs.

"It was not acceptable to us. So we went with ASBA," a Sebi source said. ASBA, or Applications Supported by Blocked Amount, is a process through which the funds equivalent to an applicant's bid amount in an IPO is blocked but is not debited until the shares are allotted to the investor. "Allowing brokers to be custodians of investor money would have made the system more risky," the source said.