homemarket NewsSEBI eyes action on mule accounts to curb inflated IPO subscription numbers: Chairperson Buch
SEBI eyes action on mule accounts to curb inflated IPO subscription numbers: Chairperson Buch
Mule accounts refer to accounts that are used as intermediaries or conduits for fraudulent activities, such as manipulating IPO subscription numbers.
Madhabi Puri Buch, the Chairperson of the Securities and Exchange Board of India (SEBI), on Friday, January 19, highlighted the intention to crack down on mule accounts that are used as intermediaries for fraudulent activities like manipulating Initial Public Offering (IPO) subscription numbers.
Giving the keynote address at the Annual International Business and Investment (AIBI) Conference in Mumbai, Buch said, "You apply in a manner that your application gets rejected. So you put in 100s... 100s of applications with multiple banks knowing full well that they will get rejected. So the whole purpose of applying is to inflate the number... These are the kinds of practices which we are observing."
SEBI has identified a few merchant bankers, she said, who it suspects of acting in this manner, and warned that the regulator is gearing up to take investigate further and initiate appropriate action if required.
"We are also seeing there is some pattern of which merchant bankers tend to be, let us say, more frequent names occuring in such kind of malpractices and therefore we will be, in the interest of investors, required to both review policy as well as enforcement action on such areas," she said.
Buch also cautioned investors against being swayed by subscription numbers or perceved euphoria over an issue saying, "Don't rush into IPOs. Wait for the prices to stabilise."
She added that SEBI is probing three IPOs for possible malpractices like inflating subscription numbers without naming the companies. However, she did not specify whether such irregularities were spotted in mainboard IPOs or in Small & Medium Enterprises (SME) IPOs.
Buch also drew attention to the issue of flippers in Small and Medium Enterprises (SME) IPOs, highlighting the need for regulatory intervention in such cases.
Flippers are investors or traders who buy a stock, often through an IPO, with the key intention of selling it for a quick profit on listing.
For long-term investors, however, Buch had a word of caution, especially in terms of viewing the IPO market solely through the lens of traders.
While acknowledging that fluctuations are inherent in the IPO game, she suggested that retail investors should wait for the release of the first quarterly results after listing before deciding on whether they should invest in a newly-listed stock -- especially because that window will allow for more efficient price discovery.
"The price discovery mechanism of IPOs is imperfect... If you're an investor, which means you want to hold for a reasonable period of time, then why are you wanting to take this risk? Wait until the price stablises; possibly wait until the first set of quarterly results come. There is no hurry and there is no impact cost for a retail investor," she said.
Buch further acknowledged the time value of money and stressed the potential consequences of regulatory delays for IPO issuers.
In an effort to streamline the process, she proposed reducing the ageing of IPO draft papers and introducing new forms of observations to expedite approvals.
(Edited by : Arvind Sukumar)
First Published: Jan 19, 2024 1:46 PM IST
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!
Lok Sabha Election 2024: What rural Delhi wants
May 16, 2024 10:10 PM
Over 50 onion farmers detained in Nashik ahead of PM Modi's visit
May 16, 2024 11:14 AM
Why Google CEO is cautiously optimistic about the election year
May 16, 2024 9:51 AM
Mark Mobius reveals how markets will react if NDA wins 400+ Lok Sabha seats
May 15, 2024 8:09 PM