Sebi panel to speed up changes in IPO regime

Banks may use ECS to clear cheques to reduce time gap between issue closing and listing.

Primary markets may see banks using electronic clearance systems (ECS) to clear cheques in order to reduce the gap between the time an issue closes and its listing on the bourses.

The primary market advisory committee of the Securities and Exchange Board of India (Sebi) met on Friday to iron out some of the logistical difficulties involved in making the IPO process faster.

"In banking, they are looking at replicating the system in secondary market transactions into the primary market. Brokers can also take money in advance for their clients or carry out transactions on behalf of creditworthy clients," said a source familiar with the development.

Currently, ECS is used by banks while clearing cheques in the secondary market since the market operates on a T+2 cycle where T is the trading day.

Cheque clearing in the primary market takes three days, which prolongs the time taken to finish the issue process. If the issue closes on a Friday, then the process is further delayed.

"To shorten the time gap, the application form has to be shortened to provide space for bare minimum information like Permanent Account Number (PAN). Data like applicant's father name and address can be done away with," said an expert.

Shortening of the time gap will be done simultaneously with institutional investors, known as Qualified Institutional Buyers (QIBs), having to pay the entire amount upfront along with application for shares.

Now, they have to pay 10 per cent at the time of application. It will also reduce the scope of a handful of investors applying for a chunk of shares.

Currently, it takes about 21 days to close an issue. For a typical IPO, the data entry happens in three stages. Brokers, who form a syndicate, key in the bid details of each applicant into the IPO software provided by stock exchanges after getting the application forms.

Bankers to the issue then collect the forms and prepare a statement with financial details such as the cheque number and the bid amount. Once this process is completed, the application forms move to the registrar, who feeds in other details such as the applicant's address and validates the demat account number.

Finally, the registrar completes the verification, finalises the basis of stock allotment to each category of applicants, gets it approved by stock exchanges and the issuer company's board, and credits the shares to the applicant's demat account.

The refund of application money to unsuccessful bidders is completed within two working days after the share allocation.

The new process, however, has evoked mixed reactions. Registrars said that while they were not sure of how the IPO process would look finally, it would certainly shorten the period between issue closure and listing of the company's shares.

"There would be no need for data entry, manual check listing and fund and share reconciliation if the process is shortened. But we do not know how comfortable merchant bankers will be with this process since the SMILE committee report had been vehemently opposed by investment bankers," said a senior official at a top registrar and transfer agent, who asked not to be identified.