Market Regulator SEBI ordered Banks to give Discounts on IPOs at Bidding Time

Securities and Exchange Board of India (SEBI) on 18 May 2011 permitted investors eligible for differential pricing in public issues to make payment at a price net of discount at the time of bidding itself. The market regulator, SEBI went on to ask merchant bankers to provide investors the benefit of discount in a public offers such as IPOs or FPOs at the time of bidding as against the time of share allotment.

Currently investors do not get the benefit from lower cash outflow at a price net of discount or the ability to apply for more shares with the same cash outlay. To resolve this issue, SEBI decided to allow investors eligible for differential pricing in public issues to make payment at a price net of discount at the time of bidding.

Sebi’s new rules in this regard that provides for discount being given at the time of bidding for initial or follow-on public offers (IPOs/FPOs), would be applicable on public offer documents filed on or after 15 June 2011.

Sebi’s decision would likely enable retail investors to apply for more number of shares with the same amount of money. The measure is also

Sebi also asked merchant bankers to ensure appropriate disclosures in offer documents and application forms to the effect that investors eligible for discount can make payment after adjusting the discount. The stock exchanges and other market entities were ordered to inculcate necessary changes in their systems for the new mechanism.

The state-owned firms had in the recent past extended discount to retail investors as part of the governments disinvestment programme. The government has set a target of Rs 40000 crore through disinvestment in state run firms during the current fiscal.