“We are unhappy about some of the malpractices that we see. We now have the data and so we will now act,” Buch said at an event organised by the Association of Investment Bankers of India (AIBI).
“We have also seen that there are hundreds of crores of applications with multiple PAN Card details, knowing well that these applications will get rejected. The whole process is done to inflate the subscription,” she said.
The regulator has observed that several mule accounts have been used to bid in public issues.
“The IPO applications are filed in a manner that they get rejected. This is done to make the subscription numbers look good. In the interest of investors, we will review both policy and enforcement actions in such areas,” the Sebi chairperson said.
A mule account is basically a trading account maintained with a stock broker or a dematerialized account or bank account linked with such trading account in the name of a person, where the account is effectively controlled by another person, whether or not the consideration for transactions in the account are paid by such other person.
The regulator also plans to improve the processing of IPO documents and is examining whether in-principle approval can be given from its side in cases awaiting approvals from other regulators or facing judicial delays. The Sebi chief also said about 68% of non- institutional investors or high net worth individuals and 43% of retail investors flip their trades in the first week of IPO listing.
“We have to acknowledge that the IPO market is a market of traders more than investors,” she said.
“If you are putting money in an IPO to flip trades, then it is a risk you are taking. But if you are a long-term investor, then retail investors should wait until the price discovery is more stable.”
Alternative investment funds:
Sebi is considering a proposal that seeks to allow alternative investment funds (AIFs) to pledge shares of investee companies.
“This should help, particularly in infrastructure investments, where we think this is a valid requirement,” said Ananth Narayan G, whole time member of Sebi.
Narayan added that Sebi has discussed this proposal with the RBI “because of the financial stability ramifications of allowing potential leverage to build in the system if you allow unlimited pledging of investing company assets.”
“With some checks and balances, a solution could be forthcoming. Sebi would come out with a consultation paper on this proposal soon,” he said.
Violation of FEMA and SARFAESI Act:
Narayan also said the regulator has also observed that AIFs were used not just for ever-greening assets but also to violate the country’s foreign exchange rules and bankruptcy norms.
“We will soon come out with consultation paper outlining general obligations of AIFs and the due diligence they need to undertake, he said.