Discretionary quota in public offers ends

Distribution in proportion to institutional bids; 5% reserved for MFs.

The Securities and Exchange Board of India amended its rules on initial public offers (IPOs) and listing guidelines to end discretionary allotment of IPOs and make distribution of shares proportional to bids by qualified institutional bidders.

Other major changes include a 5 per cent reservation for domestic mutual funds in primary offerings and a 10 per cent upfront margin for all institutional bids. Mutual funds will also be allowed to bid separately under the QIB category.

Business Standard had reported on August 24 that mutual funds could have a separate quota within QIBs and that institutional investors would be asked to cough up the margin money along with their bids.

Sebi Chairman M Damodaran told reporters after the 100th board meeting of the market regulator that "the changes to the IPO allotments are essentially to bring more transparency into the process by doing away with discretion".

Damodaran said Sebi was not concerned with the level of the market, but with the order of the market. So far, QIBs were not required to pay margins upfront while retail investors were required to pay the entire amount on application, Damodaran said.

The broad percentages specified for each investor category will remain unchanged with the quota for QIBs, high networth individuals (HNIs) and retail investors at 50 per cent, 15 per cent and 35 per cent, respectively.

Of the 50 per cent kept for QIBs, 5 per cent will now be reserved for mutual funds registered with Sebi. In the remaining 45 per cent, too, mutual funds are allowed to compete. Besides, all institutional investors will be required to provide a margin money of 10 per cent along with their applications. Earlier, they were required to pay only on allotment.

The share for retail investors has been enhanced recently from 25 to 35 per cent, bringing down the HNI quota to that extent.

THE NEW IPO REGIME

No discretionary allotment; institutions to get pro-rata allotment in IPOs

Will create a level playing field as all institutional bidders will get an equal share of the IPO pie

All QIBs will be required to provide 10% margin on IPOs

Will discount frivolous bidding; bring in transparency. Instead of rushing to put in bids, the QIBs will come at the last minute

5% of total issue will be reserved for Sebi registered mutual funds. MFs can also bid for remaining 45% of QIB quota

Will ensure allotment to MFs and expand the market for the funds