
The Securities and Exchange Board of India (Sebi) has identified certain malpractices in the primary market arena and plans to bring in rules while also acting against alleged wrongdoers.
Sebi Chairperson Madhabi Puri Buch, while speaking at an event organised by merchant bankers’ industry body Association of Investment Bankers of India (AIBI), said that there is data to show that bidding numbers of initial public offers (IPOs) are, at times, inflated and many mule accounts are used to bid in the public issues.
“Mule accounts, we all know how those work. We are now getting evidence and data about it so we have to come and do something about it,” said the Sebi chairperson.
“The second is in terms of inflating the IPO application numbers to give an impression of high amount of subscription... Either people who later withdraw their applications or... apply in a manner that your application gets rejected,” she added.
Simply put, mule accounts refer to those trading accounts that are opened to carry out front running activities or temporarily park the shares before they can be used to perform so-called ‘pump and dump’ activities – certain entities collude to pump up the prices and then sell or dump when gullible investors come to buy seeing the swift price rise -- to manipulate stock prices.
Mostly, such accounts are used by entities other than those in whose name the actual account is.
“The whole purpose of applying is to inflate the numbers. These are the kind of practices which we are observing because we now have the data to be able to see such practices,” said Buch.
Incidentally, this is not the first time that the Sebi chairperson has highlighted the menace of mule accounts. She had spoken about this issue in March 2023 as well.
The Sebi chief’s statements assume significance also because of the fact that primary markets are in a very buoyant phase with 2023 witnessing a total of 57 IPOs raising a cumulative Rs 49,434.15 crore.
More importantly, it was a record year for SME IPOs with a record Rs 4,686.11 crore raised through 182 firms. The year also saw some SME issues getting subscribed more than a few hundred times before listing at an unusually high premium when compared to the issue price.
“What we are unhappy about is some of the malpractices that we see... So should you expect some measures to come from Sebi in that direction, I think the answer is yes,” said Buch.
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