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July 31, 2008

Part with your money only when you get goods - IPO without initial investment

SEBI on Wednesday issued details on the modalities by which investors can apply for an IPO, while still keeping the application money in their bank account till finalisation of the allotment. For this purpose, SEBI has introduced a supplementary process for applying for public issues called as “Application Supported by Blocked Amount” (ASBA) process. ASBA process This application would authorise banks to block the application money in a bank account. The ASBA process shall be applicable to all book-built public issues, which provide for not more than one payment option to retail individual investors. The issuer will be treating these applications similar to non-ASBA applications while finalising the basis of the allotment, said SEBI. The ASBA process will be offered by “Self Certified Syndicate Banks” (SCSB). Banks that wish to offer this facility must submit a certificate to SEBI in a prescribed format for inclusion of its name in the SCSB list, which will be displayed on the SEBI Web site. Once listed, the bank shall then be deemed to have entered into an agreement with the issuer and shall be required to offer the ASBA facility to all its account holders for all issues to which the ASBA process is applicable, said SEBI. Long-standing demand In May this year, the board of SEBI had “approved, in principle, the concept of making lien on bank account as an alternative mode of payment in public/rights issues.” SEBI is addressing a long-standing demand of retail investors whose IPO application money is often blocked for weeks even when they are not allotted shares. This process will also do away with the refund process. This will also shorten the time between a public issue and its listing, since listing happens only after refunds are done. The ASBA facility would come into effect from the date to be specified by SEBI, once a few eligible banks are recognised as SCSBs. Investors eligible to apply under ASBA would have to bid at cut-off, with single option as to the number of shares bid for. They must agree not to revise their bid. The ASBA applicants also cannot bid under any of the reserved categories.

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