SEBI tightening IPO bid structure for institutional investors, high-net-worth individuals

Institutional and high-net-worth individuals bidding for shares in an initial public offering (IPO) may soon have to pay cash up front, similar to how average buyers do in a public offering.

According to people aware of the development, the Securities and Exchange Board of India (SEBI) is evaluating the IPO bidding procedure and considering making it essential for the two types of investors to submit bids along with the required funds.

Institutional investors and high-net-worth individuals currently have a day or two to arrange for funds after submitting their bids.

The review comes after the government stated that the current bidding system allows institutional investors and high net worth individuals to take advantage of the system by submitting a bid to artificially inflate subscription numbers only to have it cancelled due to a lack of funds or other reasons.

Such bids are referred to in the market as 'bidded but not banked' applications, and they are immediately rejected.
Such applications are conceivable since the current framework permits both categories of investors to submit a bid without also bringing in the necessary sums. In contrast, retail investors can only place a bid provided they have the requisite amount of funds in their bank accounts, which are blocked along with the bid.

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