Market structure to face shorter IPO timeline test: Industry players

Players in ecosystem will have to work overtime to ensure success

The shift to a shorter T+3 settlement cycle for initial public offerings (IPOs) will be a big test of the domestic market structure, requiring players in the ecosystem to work harder to meet the squeezed timelines, according to industry insiders.

The capital markets regulator, Securities and Exchange Board of India (Sebi), has announced that the transition to the T+3 cycle will be voluntary starting next month and mandatory from December 1.

The new mechanism will necessitate quicker confirmations from banks and speedy verification of permanent account numbers (PANs) for all applicants.

Meanwhile, registrars and depositories will need to obtain approvals, issue new shares, and conduct dematerialised transfers, potentially even during odd hours, said market participants. This could lead to the requirement of additional man-hours, particularly in the two days following the IPO close.

Market experts have indicated that most IPOs will aim to conclude during the latter part of the week, providing two additional non-working days (Saturday and Sunday) to complete back-end operations.

Currently, IPOs follow a T+6 cycle, implying that the time between issue closing and listing spans six working days. This inherently incorporates two extra non-working days that often serve as a buffer.

The time-consuming tasks, as highlighted by market participants, encompass the verification of PAN for all applicants to prevent duplication and the matching of PANs with bank account numbers to reject applications made using third-party Unified Payments Interface bank accounts.

Industry insiders have stressed the importance of faster performance from the payment infrastructure provider National Payments Corporation of India and banks, which fall outside Sebi’s regulation.

Additionally, the final step involving the appointment of a third-party auditor to ensure the fairness of the draw of lots might stretch into the late hours of the following day.

“All the cogs in the wheel have to work together. The processes are interdependent, and one task cannot begin until the previous one concludes. The real test will be an IPO that draws millions of applications. The possibility of substantial application rejections due to technical reasons cannot be ruled out if certain participants fail to perform their tasks effectively,” said an investment banker.

A smooth transition will be another feather in Sebi’s cap, as it is already receiving praise for successfully implementing the T+1 trade settlement cycle, the banker added.

Some participants have remarked that the regulator has spent over a year preparing the market, indicating a likely smooth transition.

“Given that the changes outlined in the circular have been extensively discussed among all relevant intermediaries, the shift to the T+3 timeline should happen seamlessly. Furthermore, splitting the implementation into optional and then universal adoption will facilitate a smooth transition,” commented Mohit Mehra, vice-president-primary markets & payments, Zerodha.