Alternative payment system for IPOs by end August

An alternative payment system or public issues that will not lock retail investors’ money unless shares are actually allotted to them will be launched as a pilot by the end of August, capital markets regulator Securities and Exchange Board of India, or Sebi, said on Tuesday.
“Hopefully by August end, we will start the pilot project,” Sebi chairman C.B. Bhave told reporters on the sidelines of a seminar organized by Financial Planning Standards Board India.
“We really don’t know how the system works. We need to get used to it. We have to sort out glitches, if there are any, in the beginning,” he said.Both the current system of payment through cheques and the alter native system would co-exist, the Sebi chairman said.
The alternative payment system—called the additional mode of payment through applications supported by blocked amount—will exempt retail investors from paying advance fees and instead let the amount to be retained in bank accounts till allotment is completed.The alternative payment system depends on the so-called self-certified syndicate banks that would accept applications of retail investors. Under the scheme, these banks will block the fund to the extent of the bid amount and upload the details in the electronic bidding system of the bourses. They would then unblock the funds once allotments are finalized and transfer the amounts for allotted shares to the issuer. This mode of payment will apply only to public issues offered under the book-building route and only to those retail investors who bid at the cutoff price as the single option and agree not to revise their bids.The new system is expected to eliminate the process of refunds by companies to the applicants in case of non-allotment of shares.

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