SEBI Eases Payment Norms in Public Offerings

On May 13, 2008, SEBI created a new method of payment or earmarking of funds for subscription to securities in a public offering. The press release states:

“Easing of payment process in public / rights issue:

The Board approved, in principle, the concept of marking lien on bank account as an alternative mode of payment in public / rights issues. The concept will enable the application money to remain in the bank account of the applicant till such time the allotment is finalized and thus eliminate the refund process. The modalities in this regard would be worked out separately.”

The Hindu Business Line highlights some of the benefits to investors:

“This would also reduce the burden on registrars and merchant bankers. But bankers to the issue can no longer enjoy the floating interest, said officials associated with the IPO process.

Most important of all, investors would not have to wait for their refund money. It also ensures that a liquidity crisis such as that of January 2008 does not occur again.

At that time, many investors were unable to buy scrips which were at attractive lows, as their money was locked up in the Reliance Power and the Future Capital IPOs. Nor could they meet their margin money requirements.”

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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