With an aim to rein in cases of over-pricing and over-hyping of IPOs by merchant bankers, market watchdog Sebi wants them to tell the investors about their past record in handling the public offers and also keep the prices at realistic levels. Sebi has expressed its displeasure in very clear terms to the merchant bankers over the cases where IPOs have been priced in such a manner that there is little left on table for the public investors in terms of potential returns, a senior official said.

At the same time, the regulator is also not happy with the hard-selling of these overpriced IPOs to the retail investors in a manner that ‘good returns’ are assured from investment in such share sales, even if the pricing is beyond rational levels, he added.

As a remedial measure, Sebi wants the merchant bankers to prominently disclose to the investors their track records, which would comprise of the performance of shares vis-a-vis the price in the IPOs managed by them.

At the same time, Sebi would also ask the bankers to furnish the details of due diligence conducted by them before arriving at a proposed share price or price band for the IPO-bound companies.

Sebi is in favour of merchant bankers devising their own code of conduct in terms of disclosure of their track records, rational pricing of the IPOs and avoiding any unnecessary hype over these offers, the official said.

However, if the merchant bankers fail to come out with a self-regulatory framework in this regard or do not comply with these norms, Sebi would bring out its own set of rules to rein in the erring bankers, he added.

Sebi has communicated its intentions to the merchant bankers through their industry body Association of Merchant Bankers in India (AMBI) in a recent round of meetings.

The AMBI will be discussing the matter among its members in next few days and would approach Sebi with its proposed plan of action later this month, a senior merchant banker said.

Sebi is also not happy with the over-hyping of public issues through misleading advertisements and media reports outside the regulatory ambit.

The regulator has previously considered bringing out a discussion paper on the matter, wherein it wanted to seek public comments on draft regulations to curb the menace of over-pricing and over-hyping of the public offers.

However, the merchant bankers had told Sebi that they were ready for their own set of self-regulatory measures.

The issue about disclosing track record of merchant bankers and maintenance of records of due diligence by the merchant bankers was also discussed at Sebi’s last board meeting and the regulator is taking the matter as of immediate importance.

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June 2021