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Primary market panel for more allocation to retail investors

By Oommen A. Ninan

MUMBAI, OCT. 7. The Securities and Exchange Board of India (SEBI) panel on primary market recommended an increase in the allocation for retail investors by 10 per cent to 35 per cent in a book built issue by reducing the share of non-institutional buyers (NIBs) by 10 per cent to 15 per cent. The allocation for Qualified Institutional Buyers (QIBs) would be continued at 50 per cent.

"It was observed from the analysis of book built issues done by the SEBI that in most of the cases, the NIBs leverage initial public offering (IPO) financing and are the maximum sellers in the market as soon as the issue opens for trading. There was also a possibility of bank or non-banking financial company (NBFC) financing leading to ramping up of prices on listing," the report stated.

To curb excessive speculation and also in a deliberate effort to increase retail participation, the panel recommended reduction in the allocation to NIBs and increase in allocation to retail investors. An analysis of the recent book built issues carried out by SEBI had revealed that QIBs were the most stable holders as against NIBs, who exit immediately on listing. However, the SEBI panel stated, "It is essential to ensure that the discretion granted to merchant bankers (on QIBs) is not misused" and recommended that the broad parameters on which allocation is made to QIBs should be disclosed in the offer document.

As allocation for retail investors increased, the panel also recommended that a retail investor be defined as one who can apply up to Rs. 1 lakh in a primary issue instead of the present cap of Rs. 50,000. It is observed that the Rs. 50,000 limit is too small, particularly in the context of large size book built issues. "It also appears that the small limit is the prime reason for several investors to make multiple applications in order to satisfy their investment appetite".

Bidding period

The panel also deliberated on the issue of the hype surrounding book building and suggested to reduce the bidding period from current 7-10 days to 3-7 working days. Further to address the same issue, the panel also recommend that the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) should bring more transparency and congruency in reporting of the bid data along with relevant details and also asked them to have a uniform data display on the websites of both stock exchanges.

It added, "The stock exchanges should display the consolidated figures for both the exchanges and should ensure that they communicate among themselves to ensure congruency in the data displayed. The first set of data that is displayed about the book should be the consolidated figures of both these exchanges. Anyone further interested in knowing the break up may be given the details on clicking further. The data pertaining to an issue should be displayed on the site for a further period of 3 days after the closure of the bids".

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