SEBI Moves To Curb Misuse Of UPI Route In Public Issues

The market regulator issued new guidelines to plug the loophole that artificially inflated subscription in initial public offerings, including that of Life Insurance Corp., when bids were received through the real-time Unified Payments Interface.

Applications supported by blocked amount or ASBA in public issues shall be processed only after the monies are blocked in the investor’s bank accounts, the Securities and Exchange Board of India said in a circular.

SEBI has given intermediaries and market infrastructure institutions three months from the date of the circular to make appropriate systemic and procedural arrangements.

Stock exchanges have been asked to accept ASBA-compliant bids in their electronic book-building platform only after receiving the mandatory confirmation that funds have been blocked.

The new guidelines will be applicable to all categories of investors investing through any mode.

SEBI in 2018 allowed bidding for IPOs via UPI when backed by blocked amount in accounts. It was, however, found that applications through this mode were accepted without the funds being blocked in their accounts.

That’s because UPI payment requires a one-time password to block the money. But since such investors were allowed to confirm bids even 24 hours after the issue closed, they had the option to withdraw after putting in bids if market volatility increased. It happened in the LIC IPO, and bankers eventually rejected more than 20 lakh applications.

The issue was raised by KFintech, the registrar and transfer agent for the LIC IPO, with the Department of Investment and Public Asset Management. The department had asked the market regulator to correct the anomaly at the earliest.