Sebi has decided to set up a working group of banks for a pilot project aimed at implementing its biggest move yet on the primary market, that of making the new issue application process simple so that funds do not have to exit the accounts of investors.
This move, loosely seen as an electronic form of the earlier Stockinvest scheme, will ensure that applicants do not have their funds locked into the new offers without any certainty over how much allotment they will get. The pilot project, to be implemented in a clutch of cities, would begin in three months' time, a top Sebi official told FE.
This process would essentially mean that the money committed to applying for public offers would remain locked in investors' bank accounts. But, this amount does not leave a bank; it is merely locked. Once applicants are allotted shares, an equivalent amount is then unlocked from their accounts, electronically.
This process eliminates the hassle of refunds, since the funds remain in the accounts of the applicants. Of late, several investors who have applied for new offers have been crying hoarse about their funds being blocked, while they await refunds for days. In fact, Sebi sources said the regulator was still grappling with refund problems of some large issues of this calendar year and even of those floated four years ago.
"We are talking to the banks. The working group will be comprising banks from both public and private sectors. They will then let us know how the system will be put in place and what the challenges are," the Sebi official said.
The pilot project would begin in three months in cities where these banks had the required infrastructure in place, the official added.
Sebi has made it clear that reducing the time gap between the closure of an issue and its listing is also a key priority, but the first big move it wants to make on the primary market is to make sure that monies do not leave investors' accounts when they apply for offers. "That will be a big change from the current regime," Sebi sources said.
Last week, Sebi chairman Chandrasekhar Bhaskar Bhave had hinted at an electronic version of blocking funds in investors' accounts, something which had been done in the 1990s by way of the now-defunct Stockinvest scheme. The problem with Stockinvest was that an entire instrument had to be liquidated even if the full amount was not required. This did not fully eliminate the problem of refunds. Blocking bank accounts electronically would eliminate that completely, Sebi officials explained.
The next, and an equally important step, will then be to ensure that institutions put up the entire application money up-front, and not just 10% as they do now. "If the money doesn't leave an account at all, why can't institutions commit the entire application money?" said Sebi officials. Once e-applications are made possible this way, institutions, too, do not have to worry about their funds being locked into offers without allotment being certain.
Posts
