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Saturday, August 18, 2012

The Securities Exchange Board of India (SEBI) had earlier announced a list of reforms aimed at boosting primary market, the mutual fund industry and retail participation in the market. Of all the items on the agenda, the market regulator has not yet approved the issue of a safety net for retail participants in an IPO.

Under a safety net mechanism, certain portion of the investment made by retail shareholders could be guaranteed for a fixed period against market volatility. This concept was introduced to encourage more retail participation on initial public offers, especially at a time when investment sentiment is low in the country.

As per the proposed mechanism, a certain portion of the investment made by retail shareholders in the IPOs could be guaranteed for a fixed period, which could of six months, even if the shares' value plunge below the IPO allotment price during this time.

 This 'safety net' mechanism is being considered only for the small retail investors, who would be compensated by the promoters and other entities selling shares through IPOs in the event of the company's shares plunging below a certain threshold limit within six months of listing or the time frame set by Sebi,


Chairman UK Sinha today said that this concept required more consultation, and has therefore invited the public to voice their views on the idea of a safety net.

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