'Remove quota for retail investors'

The National Securities Depository Ltd (NSDL) has suggested the abolition of the quota for retail investors in initial public offerings.

The suggestion has been made in NSDL's report to the Securities and Exchange Board of India on multiple dematerialised accounts.

Under current practice, while 50 per cent of the allotment in an IPO is set aside for institutional investors, 15 per cent goes to high-net-worth investors, and the balance 35 per cent is reserved for small investors.

The NSDL has said that the quota for small investors should be done away with till the infrastructure for checking frauds involving multiple accounts for IPO allotments are put in place.

The NSDL report is of the view that there should be a proportionate allotment for small investors instead of a quota, given that they comprise a minuscule proportion of the total market participants.

That the small investor base was not widespread was evident from the fact that there were only 90-95 lakh demat account holders, sources close to the development said.

CB Bhave, managing director of NSDL, declined to comment on the issue. Sebi had asked the NSDL to give its suggestions for strengthening surveillance procedures in the capital market following the IPO scam.

The NSDL has said there should be a mechanism to broad-base the market, with wider participation across segments of the economy, and Sebi should work out safeguards to check such manipulations.

At present, lack of adequate surveillance and the eagerness of retail investors to get an allotment in IPOs are leading to multiplicity of accounts and applications.

Detailed policy initiatives to check such a manipulation were futile for such a small segment of investors, which in the true sense did not qualify as retail investors, the sources said.