In India, SEBI acts as the governing body of the stock market. From time to time, SEBI has taken steps to improve the functionality of the market, making it more efficient and transparent. SEBI has recently introduced new norms that have far-reaching implications for the IPO landscape. Let’s check out the new norms introduced by the Securities and Exchange Board of India (SEBI).
Listing Timeline Reduced to T+3 Days
SEBI has updated the IPO norms, reducing the listing timeline from T+6 to T+3 days. Companies are given the option to follow the new rule voluntarily as of September 1st, 2023. From December 1st, 2023, it will become mandatory for all companies issuing IPOs to list their shares in T+3 days.
The changed rules will benefit both issuers and investors. It will reduce the time for issuers to be able to access the funds raised from the IPO, whereas investors will also receive the shares in a shorter period of time. Investors who are not allotted the shares will receive the money back quickly.
Here is a breakdown of the timeline under the new norms:
|T+1||Companies need to finalise allotments before 6 PM|
|T+2||Release of funds to unsuccessful subscribers.|
|T+3||Listing of the IPO on the stock exchange|
Registrars are requested to follow the guidelines to complete the allotment process on time. They can access a third-party verification service to match the PAN details of applicants. In the event of a PAN mismatch, the application will be rejected like before.
After the renewed interest in Indian IPOs, the market has witnessed a significant rise in the number of participants in the IPO market. During 2021 alone, over 60 companies were listed on the stock market. Keeping that in mind, SEBI has changed several listing rules to safeguard the interests of retail and institutional investors. These changes are worth learning about and can assist investors in making informed decisions.
SEBI has asked IPO-bound companies to make their targets clear in the prospectus to help investors make informed decisions. In a recent announcement, SEBI suggested that companies looking to raise funds for their inorganic growth must specify their targets and where they intend to spend the money. In case the company fails to qualify the target, the fund reserved for investment and acquisitions can’t exceed 25% of the total IPO capital. Unless companies make their targets clear, their IPO permission will not be granted.
Extension Of Lock-in For Anchor Investors
SEBI has extended the lock-in period for anchor investors. Anchor investors are large investors or Qualified Institutional Buyers (QIB) who place bids of a minimum of ₹1 crore in mainboard IPOs and ₹1 crore and more in SME IPOs in the book-building process. According to the changed rules, anchor investors can sell 50% of their investments after the expiration of the 30-day lock-in. They will become eligible to sell the remaining 50% after a 90-day lock-in period.
The IPO bidding window for anchor investors usually opens before it opens for retail investors.
In the past, several companies engaged in allocating shares to anchor investors to increase traction for their IPOs in the market. It allowed anchor investors to exit the market after 30 days, realising a significant profit from the initial bull run. It resulted in a deep decline in the share price for retail investors. The new rule will help prevent that.
Restriction on Offer for Sale
Earlier, several companies used to issue IPOs to offer an exit route to promoters and stakeholders. Under the new norms, SEBI has restricted the portion of offer for sale issues in IPOs. According to the new norms, stakeholders with more than 20% holdings in the company can offload only 50% of their shares, whereas small stakeholders with less than 20% stakes can sell up to 10% of their shares through an IPO.
Summary of the New IPO Rules By SEBI
|Norms||Old Rule||New Rule||Reason|
|Listing in T+3 days||IPO listing was done in T+6 days||Issuers need to complete the allocation process in T+3 days.||
|The objective of IPO proceeds||Companies could issue IPOs without defining the targets of the IPO fund||
||To clear ambiguities regarding the utilisation of the IPO fund and help investors make informed decisions.|
|Lock-in period for anchor investors||The Lock-in period was 30 days from the date of allotment.||Anchor investors can sell only 50% of their shares after 30 days of lock-in and the remaining 50% after 90 days of allotment.||The exit of anchor investors leads to high market volatility and reduces the value of shares for new and retail investors.|
The new rules help SEBI address some of the regulatory gaps. The reduced timeline for IPOs will increase the efficiency of the Indian IPO market. Overall, SEBI’s objective is to make the market more stable and transparent to safeguard the interests of new investors. If you are a new investor, you’re likely to benefit from the new rules in place. Open a demat account and start investing in IPOs with Angel One.
What is the lock-in period for an IPO?
The lock-in period is the length of time when investors are not allowed to sell their shares. It can vary, depending on the issuer, from 30 to 90 days.
What is the 3-day rule for IPOs?
SEBI has updated the listing date from T+6 days to T+3 days. IPO-bound companies now have to complete their listing on the bourses within 3 days of the end of the subscription period.
Can I sell IPO shares right after buying them?
An IPO can have a lock-in period, restricting investors from selling immediately after purchase. In that case, you’ll have to wait until the end of the lock-in period to be able to liquidate your shares. You might read the prospectus to know if there is a lock-in period.
Can I bid multiple times for an IPO?
If you have multiple Demat accounts linked to a single PAN, then it is not possible to place multiple bids. Only one application is allowed per PAN card.