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The new route will help retail investors and those under the category of "employee reservation" in an IPO to invest through the online route, without the need for cheque payment or physically filling the application forms. By doing so, the post issue timeline will reduce to six working days from the existing T+12 days. The reduced listing time means investors' funds will get blocked for a much lesser duration.
In the current system, investors have to fill forms and submit it to their brokers. Those who have a 3-in-1 online trading account, however, do not have to submit physical forms themselves but need brokers to do it on their behalf. Investors have to give a one-time Power of Attorney to their brokers for this purpose so that they can sign the forms on their behalf and submit their bids online.
In the new system, there will be no need of filling physical forms, either by the investor or the broker. Also, no physical signature will be required to submit bids. "The broad intent of the regulator is to have larger investor participation through the IPO route and make it convenient to subscribe for all such investors who otherwise are not active in secondary markets or have shied away from equity investments," said Girish Dev, MD & CEO, Geofin Comtrade.
As of today, only brokers and Self Certified Syndicate Banks (SCSBs) are allowed to bid on behalf of investors on the exchange platform. Under e-IPO, they can go through depository participants (DPs) and registrar and transfer agents (RTAs) as well. However, a DP or RTA can accept only application supported by blocked amount (Asba) applications as is presently the case with SCSBs.
Retail investors may or may not opt for the Asba route under the new system. They have the option of submitting Asba applications to a SCSB or broker. The present process associated with Asba applications does not change even under the proposed draft. Asba is a system of blocking funds of IPO applicants in their respective accounts and releasing it to the extent of allotment made.
Those not opting for Asba can pay the brokers using the National Automated Clearing House (NACH) platform of National Payments Corporation of India. NACH is a centralised system that will help investors to give instructions to their bankers for multiple debits at different points of time for making IPO applications. This will do away with the need of cheque payment.
Here is how the new system under e-IPO will work. Investors submit online applications to brokers, depositories, SCSBs or RTAs. The entities will then submit their bids on the exchange. Once the bid has been entered, the clearing corporation will block the funds from the cash collateral of the stock broker.
For bids made through DP and RTA, the application will be forwarded to SCSBs for blocking of funds. For Asba applications, the existing process of bidding and blocking of funds by the SCSB shall continue. Investors will get an SMS or e-mail alert for allotment under the IPO.
