The Securities and Exchange Board of India, the country's market regulator, plans to change the rules on collection of initial public offering money that will help protect small investors.

Pilot project

• Banks will be responsible to resolve investor grievances
• In case of failure of an issue, the bank will have to immediately release the block on receipt of request from the registrars
• Book running lead managers will have to intimate the issue opening date to self-certified syndicate banks in writing

The regulator wants to ensure that companies get the IPO money only after allotment of shares to retail and other investors, Sebi Chairman C B Bhave said today at a meeting in Himmatnagar, a town near Ahmedabad. "We hope that the pilot project will begin by end-August," he said. The plan will be rolled out throughout the country after the pilot project succeeds.

"Once the system stabilises, institutional investors will have to pay 100 per cent money with their application (they currently pay 10 per cent). This system is expected to come in by the year-end. We will start with banks and some branches that show readiness to implement this," Bhave told Business Standard.

Earlier, Sebi had put out a consultative paper, proposing the process of alternative mode of payment for IPOs, called Application Supported by Blocked Amount. This would require the retail investors bidding at a cut-off price, to apply through self-certified syndicate banks in which they have an account.

The ASBA process will require SCSBs to accept applications from investors, block the funds to the extent of the bid payment amount and then upload the details in the electronic bidding system. Once the basis of allotment is finalised, the amount required by the issuer will be released and the remaining will be unblocked by the SCSB.

Banks will be responsible for resolving the investor grievances. In case of failure of an issue, the bank will have to immediately release the block on receipt of request from the registrars. Registrars are required to maintain electronic records relating to the bids received from the SCSBs.

Book running lead managers will have to intimate the issue opening date to SCSBs in writing. In case the company withdraws the issue, the lead managers would have to inform the SCSBs of the developments and provide investor-wise details on allotment and non-allotment to each bank.

The new payments system will co-exist with existing procedures. The regulator had invited comments from the public till June 2008. Subsequently, the issue came up for discussion in the Sebi board meeting and the board cleared the proposal.