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IPO: New Payment Method

In a set of landmark new regulations, SEBI has changed the way investors' application money will be handled.

In a landmark decision that will considerably shorten the time gap in the public and rights issue allotment, the Securities and Exchange Board of India (SEBI), today, decided to shorten the payment process. The board approved, in principle, the concept of marking lien on bank account as an alternative mode of payment in public/rights issues. The concept will enable the application money to remain in the bank account of the applicant till such time the allotment is finalized and thus eliminate the refund process. The modalities in this regard would be worked out separately.


Thus the amount would continue to remain in the client's account but would not be available for withdrawal or cheque payment. It would, therefore, continue to earn interest in the intervening period. On receipt of advisory from the registrar about the allotment of shares, the bank would release the amount equal to the cost of total number of shares the client has been allotted.
In the meeting the board has also decided to enhance the minimum net worth requirement for registration as a portfolio manager from the existing Rs 50 lakh to Rs 2 crore and to give effect to the requirement of maintaining continuous networth separately for portfolio management activities. The existing portfolio managers, whose networth is less than Rs 2 crore will have to increase it to at least Rs One crore within a period of six months and thereafter, to the prescribed networth of Rs 2 crore in the next six months from the date of notification of amendment to the SEBI (Portfolio Managers) Regulations, 1993.


It was also decided that Portfolio Managers should not float a scheme or pool the resources of the client in a way which is akin to mutual fund activity. Accordingly, Portfolio Managers will not be permitted to float a scheme or pool the resources of the clients. They would be required to keep assets of each client separately and not in a pooled manner. A time frame of 6-months from the date of notification has been given to convert their operations managed on pooled basis to individual basis. The necessary amendments would be made to the Regulations.