Introduction of ASBA
Introduction of the applications supported by blocked amount, or ASBA, by market regulator Sebi in September 2008.
THE CHANGE
Introduction of the applications supported by blocked amount, or ASBA, by market regulator Sebi in September 2008.
THE INTENT
This was aimed at making the process of submitting applications for IPOs more convenient for investors. While one did not have to pay the entire fee upfront, it also intended to forego the long waiting period for refunds through cheques, which usually takes up to 45 days.
THE IMPACT
In the past couple of years, market regulator Sebi has taken several measures to make investing more transparent. One of these has been the introduction of ASBA, which helps investors avoid the hassle of paying the full fee while applying in an IPO and waiting for a refund.
Prior to the introduction of this facility, investors had to wait for the shares to be allotted before the unutilised amount was returned. Also, the residual amount was returned through cheques. Refunds used to take up to 45 days to reach the investors.
During stock market booms, most quality IPOs, such as Tata Consultancy Services, are oversubscribed. This results in the companies allotting shares in small lots, say seven stocks per application, and refunding the excess amount.
Under ASBA, the process of paying upfront has been eliminated. Now, investors can commit a certain amount, which gets blocked in the investors' account. Unlike earlier, it is not withdrawn from the account. The charges are debited once the shares are allotted and the remaining amount is unlocked immediately.
For example, if an investor submits a cheque of Rs 10,000 for an IPO, the amount is blocked in his account. This amount is taken out only on allotment of shares. If he is allotted only Rs 6,000 worth of shares, Rs 4,000 is unlocked and available in the account.
The advantage of this mechanism is that the surplus money is instantly available to the investor. This money, if left idling in the savings bank account, can earn a nominal interest of 3.5% a year or can be used for more productive purposes.
Another small measure that has resulted in greater efficiency in the Indian capital markets is the reduction in the listing time to 12 days after the closure of the public issue. Earlier, companies were given 22 days to list shares on the exchanges.
Reducing the time period has brought down the ambiguity in the market and is set to benefit retail investors. The interest cost will come down as investors' money will be blocked for a lesser number of days.
Introduction of the applications supported by blocked amount, or ASBA, by market regulator Sebi in September 2008.
THE INTENT
This was aimed at making the process of submitting applications for IPOs more convenient for investors. While one did not have to pay the entire fee upfront, it also intended to forego the long waiting period for refunds through cheques, which usually takes up to 45 days.
THE IMPACT
In the past couple of years, market regulator Sebi has taken several measures to make investing more transparent. One of these has been the introduction of ASBA, which helps investors avoid the hassle of paying the full fee while applying in an IPO and waiting for a refund.
Divestment Promoters have been asked to divest at least 25% of a company's equity to encourage participation by retail investors. PSUs were later exempted from fulfilling this requirement. |
During stock market booms, most quality IPOs, such as Tata Consultancy Services, are oversubscribed. This results in the companies allotting shares in small lots, say seven stocks per application, and refunding the excess amount.
Under ASBA, the process of paying upfront has been eliminated. Now, investors can commit a certain amount, which gets blocked in the investors' account. Unlike earlier, it is not withdrawn from the account. The charges are debited once the shares are allotted and the remaining amount is unlocked immediately.
For example, if an investor submits a cheque of Rs 10,000 for an IPO, the amount is blocked in his account. This amount is taken out only on allotment of shares. If he is allotted only Rs 6,000 worth of shares, Rs 4,000 is unlocked and available in the account.
| "We are trying to promote a mechanism, whereby the investor's money is not taken from his account till he is told how many shares are going to be allotted to him." C.B. Bhave Chairman, Sebi |
Another small measure that has resulted in greater efficiency in the Indian capital markets is the reduction in the listing time to 12 days after the closure of the public issue. Earlier, companies were given 22 days to list shares on the exchanges.
Reducing the time period has brought down the ambiguity in the market and is set to benefit retail investors. The interest cost will come down as investors' money will be blocked for a lesser number of days.
