New Delhi: Looking to protect the interests of retail investors, markets regulator Securities and Exchange Board of India (Sebi) on Friday issued draft norms for mandatory safety net mechanism in initial public offerings (IPOs).
The regulator has sought comments from the public on the draft norms till 31 October.
According to the Sebi, the safety net mechanism would be available for all securities alloted to original resident retail individual allottees, who had made an application for up to Rs.50,000.
“The total obligation on safety net provider will be capped at 5% of the issue size,” the markets regulator said.
Noting that it would be mandatory for all IPOs, Sebi said the safety net provision would be triggered in cases where the price of the shares have depreciated by more than 20% from the issue price.
“The price for this provision shall be calculated as the volume-weighted average market price of such shares for a period of three months from the date of listing,” it said.
Further, the 20% depreciation in share price would be considered over and above the general fall, if any, in market index.
The market index for this purpose may be BSE-500 or S&P CNX 500 and the index to be considered for this purpose should be disclosed in the offer document.
The proposal for such a mechanism, discussed at the Sebi’s board meeting held on 16 September, is aimed at protecting the interest of retail investors.
According to the board, besides disclosures, other measures are needed to bring in self-discipline in IPO pricing and one of the steps to protect the interests of small investors is a safety net mechanism.
There is already a voluntary safety net mechanism in place for IPO investors. PTI