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No subscription figures till close of public issues

No subscription figures till close of public issues
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First Published: Sun, Mar 07 2010. 11 33 PM IST
Updated: Sun, Mar 07 2010. 11 33 PM IST
Mumbai: Capital market regulator Securities and Exchange Board of India (Sebi) is cracking down on the practice of reporting oversubscription in public issues. In a bid to discourage inflation of demand, Sebi has asked the exchanges to stop making the subscription number public while an issue is open, according to two officials familiar with the development.
At present, the category-wise bidding details for a public issue are updated hourly on exchange websites while it is open. For forthcoming issues, the information will be available only after the issue closes.
“Sebi is worried about multiple subscriptions and misrepresentation of demand,” said S. Vishvanathan, managing director and CEO, SBI Capital Markets Ltd. A Sebi spokesperson declined to comment.
The move comes amid steps announced on Saturday by Sebi. This includes institutional investors having to pay their entire subscription as an upfront margin. All public share sales—initial, follow-on and rights issues—that hit the market after 1 May will be subject to the new rules.
The move is aimed at curbing inflated demand in public issues and providing a level playing field to all investors, Sebi said in a statement. Qualified institutional investors (QIBs) are required to deposit only 10% of their subscription. Sebi chairman C.B. Bhave said the steps were in line with the aim to cut the listing timeline to seven days from the current 21.
Experts believe the moves will bring some rationality in the pricing of public issues.
“The days of aggressive pricing will be over,” said U.R. Bhat, managing director, Dalton Strategic Partnership Llp. “Now, only genuine investors will come in for bidding and most of the bids are likely to take place at the lower end of the price band, which is good.”
Bhat said the moves may not affect subscription levels significantly. “Issues floated in the past one year have already been witnessing lower subscriptions, both in QIB and the retail portions, compared to those during the bull run of 2007,” he added.
Smaller funds may be put at a disadvantage, said Naresh Kothari, president, Edelweiss Capital Ltd. “Earlier both small and large long-only funds used to bid for equal number of shares with 10% margin money. But now with 100% upfront margin, large fund investors will have an advantage over small ones,” he said.
Sebi also gave in-principle approval to introduce physical delivery in equity derivatives after discussions with exchanges and market participants.
Sayee Srinivasan, head of product strategy, Bombay Stock Exchange, said physical delivery is unlikely to replace the existing cash settlement system. It could be optional, or a new set of products with physical delivery may be introduced. “I don’t think it’s a good idea to tamper with an existing market which is liquid.”
The step may be easier to implement in single-stock futures as delivering individual stocks that constitute the index could be complicated. “Physical delivery does not mean leverage would come down. The moment there is a margin, the element of leverage automatically comes in whether or not delivery is physical,” he said.
n.subramanian@livemint.com
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First Published: Sun, Mar 07 2010. 11 33 PM IST