Market regulator SEBI has now brought in a policy to smoothen reconciliation among intermediaries in connection with IPOs. Another important move by SEBI pertains to addressing IPO investor grievances, especially those who use UPI (unified payment interface) for making payments.
Further, SEBI has allowed the Paytm UPI handle for investors who wish to invest in IPOs. As per SEBI norms, only the UPI handles it has mandated can be used for issuing IPO mandates.
Blocking or unblocking of funds
The SEBI policy will address any issues pertaining to delays in the receipt of mandate by investors for blocking of funds because of systemic problems at the intermediaries’ end. The policy will also address issues around failure to unblock funds in partial allotment cases by one working day post finalisation of BOA (basis of allotment). The basis of allotment is a document that is published by an IPO registrar (one of the intermediaries) after finalising the allocation of shares based on guidelines. Essentially, the BOA gives all information about the demand of the IPO stock.
As per the new SEBI framework, sponsor banks would need to send any pending applications for unblocking to the registrar and transfer agent (RTA) along with the allotment file, not later than 12.30 pm on BOA+1.
Once this is done, the registrar to an issue (RTI) would submit bank-wise pending UPI applications to SCSBs along with the allotment file for unblocking before 2 pm on BOA+1. This will be followed by the submission of confirmation by the SCSB to the lead managers and RTA on BOA+1. Any lapse by the SCSBs in providing details as per this format will be liable for action.
Addressing issues pertaining to UPI payments
These and other changes will be brought into effect from May 1, 2021. Among the issues SEBI addresses through this new framework is that self-certified syndicate banks (SCSBs) will need to identify a nodal offer for IPO applications that are processed through UPI as a payment mechanism. The details of the processing would need to be submitted to SEBI within seven working days.
As part of the new framework, SEBI mandates that brokers and investment bankers will need to compensate any IPO applicants for oversights by paying Rs 100 day or 15 per cent interest per annum on the application amount, depending on which one of the two is higher.
Also, to ensure ease of doing business, the sponsor banks will host a portal for intermediaries starting from the date of the IPO till the date it is listed. This portal will contain all details of any mandate blocks or unblocks, the performance of UPI handles, apps, and any downtime or delays across intermediaries. Essentially, any process that has an impact on the bidding process of the IPO will be documented.
The intermediaries in an IPO include merchant bankers, underwriters, bankers and registrars and are registered by SEBI. These intermediaries perform all IPO-related activities including preparation of draft offer documents, basis of allotment and crediting of shares to the successful applicants of IPOs.
SEBI’s past moves at streamlining IPO process
It was in 2018 that the market regulator had introduced the use of UPI as a payment mechanism with application supported by the blocked amount (ASBA) for retail individual investors. This was later extended to retail individual investors who submitted applications through intermediaries in 2019. The acronym ASBA refers to an investor’s application to SCSBs. The application contains an authorisation to block bank account debit till it is selected for allotment after finalisation of the basis of allotment. The ASBA facility was made mandatory for all investors who were applying to an IPO back in 2016.
The use of UPI will not only speed up the process of applying for IPOs by investors but also boost their confidence when it comes to participating in the market. The unified payment interface has grown in popularity over time, with nearly 2.3 billion transactions amounting to Rs 4.2 trillion, made via UPI in January 2021 alone, according to Niti Aayog data.
The new framework from SEBI aims at ensuring that the IPO process is smooth and investors are benefitted from the seamless process. It also helps investors redress their grievances easily. Further, investors can opt for the IPO application process via UPI, which is a popular payment mechanism and can be used on any smart device. This is in continuation of SEBI’s efforts at making the process smooth, efficient and fair for all stakeholders involved.