Sebi panel gives recommendation, approval expected soon.
The Securities and Exchange Board of India (Sebi) will soon rework the guidelines for Asba (application supported by blocked amount) in public offer applications to make it more acceptable to capital market intermediaries. The new norms will see banks and brokers sharing the commission, a long-standing demand of the latter.
According to two persons familiar with the development, the proposal has been made by a Sebi committee. The regulator’s approval is expected soon.
The committee proposed a 25-75 formula for sharing, said a source on condition of anonymity. Brokers will get 75 per cent commission while the rest will go to the bank. The committee members feel brokers should get more as they market the IPOs.
Asba commissions have been a point of debate since the mechanism was introduced in September 2008. The committee members deliberated on the details reached a consensus, said another person privy to the discussions. “The idea is to have a role-based incentive or compensation system in place. The proposals have been forwarded to Sebi and we expect the final approval pretty soon,” he said, requesting condition anonymity, as the proposals have not been made public.
Meanwhile, Sebi Chairman C B Bhave has publicly acknowledged again that the norms need to be reviewed. “We are talking to merchant bankers to know the glitches in Asba; there is a need to increase the rate of investors applying for shares through Asba,” Bhave said at an event in Kochi on Tuesday.
Under Asba, the applicant can bid even as the money stays in his/her bank account. The amount is debited only at the time of allotment. This process eliminates delays due to refunds, speeding the process. While initially, the Asba facility was only for retail applicants, it was extended to institutional investors in April.
Experts tracking the primary market mechanism say Asba can gain wider acceptance if brokers are given incentives.
Since brokers bring investors, the commission needs to be split between banks and brokers, they say. At present, banks get the commission and that is the biggest reason why Asba has not taken off in a big way, says Prithvi Haldea of PRIME Database.
Merchant bankers say while the current norms give banks the right to commission, brokers also manage to get a share, based on an informal arrangement. The proportion is based on the number of applications the broker routes through a particular bank.
According to a status note prepared by a Sebi committee in 2009, Asba applications in some IPOs accounted for 12 per cent of all retail applications. While latest numbers are not available, market players say there has been an increase in the number of takers.
