Key Details of the SEBI Tightening the Rules Around An IPO
- SEBI’s rules aim to tighten the regulatory gap and avoid extreme volatility in pricing on listing day.
- Here is what the new rules address:
- How companies are allowed to set their price bands
- When any anchor investors can sell their existing shares
- How much can large shareholders sell on IPO listing day
- How the company can spend proceeds of the share sales.
- SEBI had previously relaxed specific rules to allow startups without a record of profitability to participate in the IPOs.
- Large shareholders can sell up to 50% of their shares on listing day. They are now barred from selling all their holdings.
- SEBI has reasoned that the exit of a prominent shareholder on listing day can cause a confidence crisis for retail investors. Especially for startups with no proper track record of performance, the withdrawal of an existing promoter can cause hiccups for retail investors.
- Moreover, the market regulator has specified how companies can spend their proceeds from their raised capital. Companies can spend only 25% of the money raised from the IPO for unidentified purposes. Moreover, the rating agencies will monitor how the funds were used.
- Further, SEBI has increased the lock-in period for anchor investors. It has increased from 30 days to 90 days. SEBI has done this to prevent price volatility on listing day.
SEBI has taken these steps to protect retail investors when anchor investors (Qualified Institutional Buyers) exit the IPO show, usually the IPO tanks. Thus, retail investors suffer losses from their exit. Hence, analysts expect the move to be favourable for retail investors.
Frequently Asked Questions
- When anchor investors exited after the lock-in period by how much did Zomato’s shares dip?
Ans. Zomato’s shares tanked by 8.8% after the anchor investors exited post the lock-down period.
- When anchor investors exited after the lock-in period by how much did Paytm’s shares dip?
Ans. Paytm’s shares tanked by 13% after the exit of anchor investors.
- How much have companies raised in IPOs?
Ans. Companies have raised $9.7 billion in 2021 on the Indian stock market.
Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.