For fair game, IPO auction may go online

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New Delhi, Aug 5: The government is examining the possibility of auctioning online initial public offers to make the primary market more transparent. The online IPO auction could replace the present book-building process used for price discovery.

The overhaul is aimed at minimising manipulation, making the process efficient, faster and investor-friendly. The finance ministry has entrusted the Primary Market Advisory Committee (PMAC) of the Securities & Exchange Board of India with the task of preparing a roadmap in this regard. The online auction would be applicable to the quota meant for qualified institutional bidders.

“In a recent Sebi board meeting (July 16), it was agreed that PMAC would prepare a detailed set of recommendations to streamline the entire IPO process. The committee is expected to submit its report in a couple of months,” a finance ministry official familiar with the issue, said.

Another official involved in policy formulation said India was well placed to start an online IPO auction. “But that will require convincing a lot of stakeholders—such as banks, merchant bankers, registrars and lead managers to IPOs— since their interests will be undermined once India goes online for price discovery,” he added.

According to primary market analyst Prithvi Haldea, an online auction for institutional investors is plausible to determine the price for allotment of an issue. Using this method, the price quoted per share in a public issue will be listed on a top-down basis and the allotment decided accordingly. Retail investors will be able to price their bids at the lowest end of the chart, instead of pitching for the top-of-the-price band.

This method is put to use by the European markets but has not been introduced in the US.