Investors get alternate payment option for IPOs

In a proposal made by SEBI, retail investors who are ready to apply at the cut-off price in a public issue on the condition that they will not revise their bids later on, will be eligible to use the proposed Applications Supported by Blocked Amount (ASBA) mode of payment. Under ASBA, the application money will not leave the investor’s account till the basis of allotment has been finalised.

SEBI has worked out the modalities for the proposed system and has invited public comments for the same. June 6 has been fixed as the last day for submitting comments or suggestions. However, ASBA method will be only an optional one and would co-exist with the current system of investors using cheque as a payment instrument.

According to the proposed process, retail investors would have to submit bids at the cutoff price through self-certified syndicate banks (SCSBs) in which they have their accounts. Thereafter, the banks would accept the applications, block the funds to the extent of bid payment amount, upload the details in the electronic bidding system of BSE or NSE, unblock the money once the basis of allotment is finalised and transfer the amount for allotted shares, to the issuer. At the same time, if sufficient balance for blocking the amount is not available in the applicant’s account, the application shall be rejected.

Banks that wish to be recognised as SCSB must hold a valid registration certificate as a banker to issue under the Sebi (Bankers to an Issue) Regulations, 1994. Banks also need to undertake mock trial run of its systems with BSE or NSE and few registrars and in order to check that the adequate systems and infrastructure are in place at its controlling branch and the designated branches.

Such banks must also have an arrangement with BSE or NSE, which would allow them access to the web-enabled interface of BSE or NSE for uploading the bid/application data in their electronic bidding system.

Sebi has directed the stock exchanges to make available a web-enabled access to their electronic bidding system to the SCSB and the designated branches for uploading of the bid/application data.

SCSBs, which wish to enable online application through ASBA, will have to use its own net banking facility and will not be allowed to compel the investor to apply through brokerage entities that are its subsidiaries or associates or with whom it might have some arrangements.