Capital market regulator Securities and Exchange Board of India (Sebi) has proposed to make application supported by blocked amount (Asba) compulsory for retail investors.
In order to bring down the time taken between closure of an initial public offering (IPO) and listing of a security, Sebi wants to make Asba complusory for retail investors in a “phased manner” and wants to shift from the current IPO distribution model of “syndicate Asba” to “bank Asba”.
The regulator has set an objective of bringing down the IPO timeline from the current 12 days to five days.
Introduced by Sebi in 2008, the Asba facility allows investors to apply for public offerings, with the money moving out of the bank account only after allocation of shares. In 2011, Sebi made Asba complusory for non-retail investors—quailifed institutional buyers and high net worth individuals. Meanwhile, retail investors, at present, can apply either by way of Asba or through the traditional method of cheque payment.
A shift to bank Asba distribution model would be significant for the markets as it will render brokers redundant in the IPO ecosystem.
“In the near term, a shift from the present syndicate ASBA to a bank Asba, together with making Asba mandatory for all primary issue payments, would bring significant efficiencies in the time taken to close issues, and extend the geographical and retail reach of the market,” states a Sebi board meeting agenda paper.
Under syndicate Asba, investor applications are collected by a syndicate of brokers and banks. Brokers collect applications and send these to specified bank branches with payment authorisations. Bank Asba is a process wherein investors give their applications directly to banks.
Currently, all public offerings are largely distributed through a syndicate network comprising various brokers and sub-brokers with payments done through either cheques or Asba mechanism.
Sebi’s decision to move to bank Asba is likely to miff brokers as the commissions they get could take a hit.
“It’s the broker who draws investors to IPOs. If the system moves towards bank Asba, brokers won’t provide services like filling up the IPO forms and marketing public issue to investors. Banks are not geared up to market equity products like IPOs,” said a broker in charge of IPO distribution with an investment bank.
Sebi believes the bank Asba model would make the IPO process less complex and, therefore, less fraught with operational risk.
The regulator, however, acknowledges that moving away from syndicate Asba could be tricky. “The problems of risk management and of distributor incentives would need handling, and are more complex than in secondary markets,” said the agenda paper.
Sebi also plans to enhance the reach of Asba by mandating all Asba banks to provide the facility in all their branches. This, too, will be implemented in a phased manner so that banks get time to upgrade their infrastructure.
