Securities and Exchange Board of India (Sebi) chairman G N Bajpai gives the impression of a man restless to do more every time one meets him. In a span of over a year that he?s been at the helm at Sebi, Mr Bajpai, much to the horror of journalists on the beat, has managed to curb leaks from the regulatory authority and has gone about his job with a quiet determination. Not prone to making major public announcements, one was a bit surprised to see him make a detailed media briefing on June 24 in New Delhi, when he unveiled a fresh round of primary market reforms.
While the norms are yet to be formally notified by way of circulars, few know that these have been in the pipeline for over six months now: quietly, Sebi has been giving shape to these changes for quite some time, and it was only when everything was signed, sealed and delivered that Mr Bajpai decided to take the plunge and announce it to the media. Even the Sebi board, unknown to many, has cleared these changes already. The aim behind these changes is clearly to go into the next stage of reform in the primary market by further empowering the investor and putting him on a more equal footing vis-a-vis the institutions. But Mr Bajpai has also kept the issuers? interest in mind, and the moves aren?t only aimed at the investor.
Consider some of the major initiatives announced by Sebi. One is the move to allow a greenshoe option in book-built initial public offers (IPOs) to the extent of a maximum of 15 per cent of oversubscriptions. The objective behind this is to ensure price stability, so that the usual volatility in the first few days of listing is checked. Besides, there?s also a new stipulation to list book-built IPOs within six days of the closure of the issue, to ensure there?s no artificial market between the issue closing date and the date of listing. ?Both investors and issuers should be better off. And retail investors should be treated equally with qualified institutional buyers,? explains Mr Bajpai.
In a vital change, Sebi has now ruled that Qualified Institutional Buyers (QIBs) will no longer be able to withdraw bids once they bid in a book-built IPO, a move which takes away a key advantage they enjoyed earlier. Frivolous bids, Sebi hopes, will be curbed by this step. Long a votary of greater retail participation in the capital market, Mr Bajpai?s new initiative will also see the institutional portion of a book-built IPO brought down from the earlier 60 per cent to 50 per cent, on par with retail investors. New entry norms based on minimum tangible assets are also part of the package. ?If you want to come up with an IPO, at least show some tangible assets,? the Sebi chairman says, elaborating on the rationale behind the move.
But there?s a sop for the issuers also: there?s now going to be a movable price band concept (as opposed to a fixed minimum floor price) for book-built IPOs. This will give greater flexibility to issuers to price their issues after assessing the demand in detail. Mr Bajpai?s new recipe has a lot more: there?s a new definition for who is a small investor, a stipulation that CEOs and CFOs must authenticate disclosures in the offer documents etc. Over the next few days, Sebi will formalise all these moves.
By opting for a ?big bang? approach in announcing these reforms, rather than doing it bit by bit, Sebi has also deftly avoided falling prey to any resistance which may have built up if the markets got wind that the regulator was planning a number of such reforms. Now, it?s a holistic package of steps which has been presented. And while Sebi is clear that the timing of the steps, coming just after the huge success of the Maruti IPO, is a coincidence, it?s obvious that these initiatives, together with the Maruti factor, has brought the spotlight firmly back on the primary market after several months. What is now required is for issuers and investors to behave responsibly, and for more quality issues to take this feel-good factor forward. Maybe the disinvestment ministry can do its bit for that!