Publication: Capital Market Magazine, December 2010
Article Summary: This article reviews several important regulatory initiatives introduced by the Securities and Exchange Board of India (SEBI) in 2010 aimed at strengthening investor protection and improving the functioning of India’s capital markets. One of the most significant developments was the expansion of the Application Supported by Blocked Amount (ASBA) mechanism to all categories of investors, including institutional investors. By allowing the application amount to remain blocked in the investor’s bank account instead of being paid upfront, ASBA reduced the risk associated with refunds and shortened the time gap between the closure of a public issue and the listing of shares.
The article also discusses the introduction of the French auction method for follow-on public offers and the government’s experience with this mechanism in disinvestment issues such as NTPC and REC. In addition, SEBI mandated that institutional investors pay the full application amount while bidding for shares, thereby eliminating the earlier advantage enjoyed by them and creating a more level playing field for retail investors. Other measures included the introduction of a call auction process during the pre-open trading session to reduce volatility in opening prices, steps to improve compliance with PAN requirements in demat accounts, and tighter norms governing preferential allotment of shares and warrants to promoters. Collectively, these reforms were intended to enhance transparency, improve price discovery and strengthen investor confidence in the securities market.
Key Insight: Effective regulations are essential to ensure fairness in capital markets and to maintain a level playing field between retail and institutional investors.