The Hindu : Business : Alternate payment mode for IPOs by month-end

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Wednesday, Aug 06, 2008
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Alternate payment mode for IPOs by month-end

Special Correspondent

To do away with the process of refunds by companies

— PHOTO: RAMESH SHARMA

PILOT PROJECT: C. B. Bhave, Chairman, SEBI, addressing the Financial Congress 2008 in New Delhi on Tuesday.

NEW DELHI: Market regulator Securities and Exchange Board of India (SEBI) on Tuesday announced that an alternate payment mode for public issues would be launched by the month-end as a pilot project which would ensure that the funds of retail investors were not blocked until the actual allotment of shares.

Interacting with newsmen on the sidelines of a seminar here, SEBI Chairman C. B. Bhave said: “Hopefully by August-end, we will start the pilot project…We really do not know how the system works. We need to get used to it. We have to sort out glitches if there are any in the beginning”.

Alongside, Mr. Bhave revealed that three entities have so far evinced interest in launching exchange-traded currency futures which were likely to be in place by the month-end to help investors in managing volatility in currency markets.

Even as the SEBI chief did not reveal the names of the three entities, they are said to be NSE, MCX-promoter Financial Technologies and a consortium of HDFC, Kotak and SBI.

Mr. Bhave clarified that the alternate payment mode would be an additional facility to investors and would co-exist with the prevalent system of payment through cheques for public issues. “It [alternate payment mode] will not be pushed on to everybody,” he said.

Under the new payment system, to be called ‘Additional mode of payment through applications supported by blocked amount’, retail investors would be exempted from making full payment in advance. Instead, the amount would be retained in bank accounts of the prospective investors till the completion of allotment of shares.

Under the scheme, ‘Self-certified syndicate banks’, which would accept the application of retail investors, would block the payment to the extent of the bid amount, upload the details in the electronic bidding system of the Bombay Stock Exchange or National Stock Exchange, and then unblock the funds once the basis of allotment is finalised so as to transfer the amount to the issuer for payment of the allotted shares.

This alternate mode of payment is to apply only to public issues offered under the book building route. Also, only those retail investors who bid at the cut-off price as the single option and agree not to revise their bids would be part of this payment process.

The system is aimed at doing away with the process of refunds by companies.

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