IPO reforms, alternative investment funds’ entry in commodities on Sebi agenda

The capital markets regulator will consider cutting the listing time for initial public offerings, allowing alternative investment funds (AIFs) to invest in commodity derivatives and tighten rules for participatory notes in its 21 June board meeting, two people familiar with the matter said.

The Securities and Exchange Board of India (Sebi) plans to reduce the listing time to four working days from the current six and trim the size of share sale documents, said one of the two people cited above, requesting anonymity.

“It takes six days after the close of bidding in the initial public offering for a company to list on stock exchanges, keeping investors’ funds locked in for a long period of time,” the person said.

“This may be done by making the post issue process more efficient. The process for rights issues is also being streamlined,” the second person said, also on the condition of anonymity.

The listing timelines have become shorter following the introduction of the mandatory ASBA (applications supported by blocked amounts) facility for retail investors in November 2015, said Mahavir Lunawat, group managing director of investment bank Pantomath Advisory Services Group.

Asba is an online payment facility provided by banks wherein the application money gets debited from customer accounts only after the stock allotment is done.

“Some companies are now listing in less than six days. To ensure this timeline for all companies, banks can work on confirming blocking of application money and bidding on a real-time basis,” said Lunawat.

The idea was first mooted in a discussion paper released in January 2015.

The second reform being considered is to reduce the size of the share sale documents. “Offer documents for IPOs have become bulky. While Sebi has reduced the size of abridged prospectus, the disclosures in the full offer document also need to be rationalised,” said the second person.

Sebi may also allow AIFs to invest in commodity derivatives.

“On April 28, Sebi had issued a discussion paper to allow category III - AIFs to invest in commodity derivatives, to infuse liquidity in commodity trading. This may be finalised soon,” said the first person.

According to the Sebi proposal, AIFs will not be allowed to invest more than 10% of their corpus in a single commodity and will need to take permission from existing investors before investing in commodity derivatives.