SEBI proposes major revisions to domestic IPO framework

In a consultation paper released on Thursday, the Securities and Exchanges Board of India (SEBI) has proposed changes to the structure of large initial public offerings (IPOs), including increasing the allocation limit for institutional buyers and reducing the share of retail investors.

The market regulator has sought comments on changes proposed on anchor investor norms, institutional lock-in periods, and transferring parts of retail quota to other segments.

In order to encourage longer holding periods, curb speculative exits and align with global best practices, SEBI has proposed to extend the lock-in periods for anchor investors beyond existing 30-day (50%) and 90-day (50%) requirements.

The regulator has also sought public feedback on whether the retail investor quota should be adjusted, citing increased retail participation and concerns that large issues may not see full subscription from small investors.

FPIs are active participants in IPOs. However, the current cap on the discretionary (anchor) portion poses challenges in attracting large FPIs and global investment funds, who typically have diverse investment horizons and prefer large, assured allocations,' SEBI said.

Over the past five years, main board IPOs have averaged above Rs 3,000 crore, making the current anchor allocation limits less effective.

To address this, SEBI has proposed increasing the number of anchor investors allowed for large issues, permitting 5'15 investors for allocations up to Rs 250 crore and adding 15 more investors, instead of 10 investors, for every additional Rs 250 crore, with a minimum allotment of Rs 5 crore each.

Further, SEBI wants to increase the minimum application size from Rs 1 lakh to Rs 2 lakh or more for small and medium (SME) IPOs, which could impact the definition and treatment of retail investors in these issues.

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