IPO Watch: SEBI's new rule on ASBA applications to bring parity among retail investors, QIBs, HNIs; in effect from 1 September

IPO Watch: Capital markets regulator Securities and Exchange Board of India (SEBI) on Monday said ASBA (Application Supported by Blocked Amount) applications in public issues will be processed only after the application money is blocked in the investor's bank accounts. Zee Business’ Tarun Sharma brings this exclusive report.

The new guidelines will be applicable for public issues opening on or after September 1, 2022, Sebi said in a circular.

Whenever retail investors files an application for an IPO and pays money to subscribe it, ASBA blocks that amount in the bank. In the same vein, as soon as the money is put by Qualified Institutional Buyers (QIBs) and HNI category investors, it will be blocked by ASBA.

"Stock exchanges shall accept the ASBA applications in their electronic book building platform only with a mandatory confirmation on the application monies blocked," the regulator said.

If after the processing of their applications, the shares are allotted to them, the blocked money will be used and if shares are not allotted then the amount will be unblocked.

An attempt is being made to provide a level playing field to retail investors, QIBs and HNIs, Sharma said.

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He also pointed out to the practice among QIBs and HNIs, where they withdraw their applications and pull out their money if they see that the IPO is not getting a good response in the grey market. Retail investors often subscribe the issue considering the response of QIBs and HNIs, Sharma further said.

He said that merchant bankers were against this rule, however, the regulator went ahead and implemented this rule in view of the interests of retail investors.        

This will be applicable for all categories of investors -- retail, qualified institutional buyers, non-institutional investors and other reserved categories and also for all modes through which the applications are processed.

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In December 2009, Sebi prescribed the facility of ASBA in public issues for all categories of investors except Qualified Institutional Buyers (QIBs) and in May 2010, the regulator extended the facility to QIBs.

ASBA is an application by an investor containing an authorization to Self Certified Syndicate Bank (SCSB) to block the application money in the bank account, for subscribing to an issue. If an investor is applying through ASBA, his application money will be debited from the bank account only if his/her application is selected for allotment after the basis of allotment is finalized.   

Inputs from PTI