e-IPO: going set to get smoother for investors eyeing public issues

| | Updated on: Jul 03, 2015

SEBI’s new initiative is likely to result in higher retail investor participation in IPOs

Life is going to become easier for retail investors subscribing to initial public offerings (IPOs) with electronic public issues on the anvil.

e-IPO means the use of secondary market infrastructure — the electronic platform offered by stock exchanges through its brokers or that of the depository through its depository participants.

Bridging network

According to SEBI’s draft process flow, brokers will be advised to use the National Automated Clearing House (NACH) platform of the National Payments Corporation of India (NPCI) to receive upfront payment from the investor.

The NACH system of the NPCI is connected to more than 95 per cent of India’s banking system, including scheduled commercial banks, regional rural banks, state cooperative banks, urban cooperative banks and district central cooperative banks.

The use of this system is likely to enable higher retail investor participation in IPOs as those just having bank accounts can apply for IPOs using a one-time physical mandate registration to their broker.

Going forward, the timelines for IPO will be reduced from the existing 12 days (time period between issue close to the date of listing) to six days, effective January 1, 2016.

Unique reference ID

SEBI has already indicated that it proposes to reduce it further to two to three days in the future and this is possible only if applications are lodged, funds transferred and allotments to investors all are done electronically.

Here is how the system works. The investor fills the physical NACH mandate and submits it to the broker who forwards it to his bank. The broker’s bank initiates the mandate into the NACH system which then forwards the request to the investor’s bank.

Once the investor’s bank approves the request, NACH generates a unique mandate reference number (UMRN) — a 20-digit unique number for each mandate. The unique number contains the first four digits of the IFSC code of both the banks while the remaining 12 digits form the running sequence number.

The broker’s bank sends confirmation response to the investor’s bank via the NACH system.

The money for bids made through DP will be blocked by ASBA (application supported by blocked amount) banks or will be transferred to the issuer’s designated account with the clearing corporation.

Published on January 24, 2018

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