Are you interested in purchasing an IPO? Unless you have money in your account, you cannot book.

The initial public offering, or IPO, applications should only be approved if there is supporting money in an investor's bank account, according to the Securities and Exchange Board of India (Sebi). In a recent circular, Sebi stated that "Stock exchanges shall accept the ASBA applications in their electronic book building platform only with a necessary confirmation on the application monies blocked."

IPO New Rule Explained for the Investors

1) According to reports, the regulator discovered that big institutional investors and high net worth individuals were placing bids solely to artificially inflate the number of subscriptions and not to receive allotments. As a result, applications for public issues that are ASBA (Application Supported by Blocked Amount) will only be completed when the application money has been blocked in the investor's bank accounts.

2) The market regulator stated in the circular that IPO applications should only be completed if an investor has the necessary funds in their bank account to back the application. The regulator stated that stock exchanges must establish that the application funds have been blocked before accepting ASBA applications on their electronic book building platform.

3) The regulator also stated that all categories of investors, including retail, qualified institutional buyers (QIBs), non-institutional investors (NICs), and other reserved categories, will be subject to this new rule. On or after September 1, public concerns must adhere to the new standard. However, in actuality, QIB and NII or HNI categories are given some latitude when it comes to bidding. Currently, monies from all of these categories are deducted depending on ASBA.

4) Public offerings (IPOs) beginning on or after September 1, 2022, shall be covered by this revised circular.

5)As of right now, the application enabled by the blocked amount(ASBA) framework is used for IPO bidders. Here, the funds don't leave an investor's bank account until the shares are distributed.

Following incidents during the initial public offering (IPO) of Life Insurance Corporation (LIC) when certain applications had to be canceled due to insufficient funds in the bank accounts, Sebi issued its most recent directive. Approximately 20 lakh applications in the Rs 21,000 crore state-run insurance giant LIC IPO were rejected, the majority due to ASBA through UPI not being authorized.

According to market analysts, the regulator's new guideline would provide a realistic representation of IPO subscription figures and encourage only serious bidders to apply.

The facility of ASBA in public issues was mandated by Sebi in December 2009 for all investor groups, except Qualified Institutional Buyers (QIBs). The facility was made available to QIBs by the regulator in May 2010. An investor submits an application known as an ASBA, which includes permission for the Self Certified Syndicate Bank (SCSB) to restrict the applicant's funds from being used to subscribe to an issue. If an investor applies through ASBA, his/her application money will only be deducted from the bank account if it is chosen for allocation once the basis for allocation has been decided.

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