From UPSC perspective, the following things are important :
Prelims level : IPO
Mains level : Not Much
The Securities & Exchange Board of India (SEBI) has approved amendments to a slew of regulations to tighten the Initial Public Offering (IPO) process and norms governing the utilization of IPO proceeds by promoters.
What is an IPO?
- Every company needs money to grow and expand.
- They do this by borrowing or by issuing shares.
- If the company decides to opt for the second route of issuing shares, it must invite public investors to buy its shares.
- This is its first public invitation in the stock market and is called the Initial Public Offering (IPO).
What does it mean for investors to buy shares?
- When one buys such shares, he/she makes an IPO investment.
- He/she gets ownership in the company, proportionate to the value of your shares.
- These shares then get listed on the stock exchange.
- The stock exchange is where you can sell your existing shares in the company or buy more.
How does an IPO work?
- The Securities and Exchange Board of India (SEBI) regulates the entire process of investment via an IPO in India.
- A company intending to issue shares through IPOs first registers with SEBI.
- SEBI scrutinizes the documents submitted, and only then approves them.
Who can hold IPOs?
- It could be a new, young company or an old company that decides to be listed on an exchange and hence goes public.
What are the recent regulations?
- In its board meeting, SEBI approved conditions for sale of shares by significant shareholders in the Offer-For-Sale (OFS) process via an IPO and has extended the lock-in period for anchor investors to 90 days.
- Shares offered for sale by shareholders with more than 20% of pre-issue shareholding of the issuer, should not exceed 50% of their holding.
- If they hold less than 20%, then the offer for sale should not exceed 10% of their holding of the issue.
- These changes are as per proposals recommended by SEBI’s Primary Market Advisory Committee.
Try this question from CSP 2019:
Q.In India, which of the following review the independent regulators in sectors like telecommunications, insurance, electricity, etc.?
- Ad Hoc Committees set up by the Parliament
- Parliamentary Department Related Standing Committees
- Finance Commission
- Financial Sector Legislative Reforms Commission
- NITI Aayog
Select the correct answer using the code given below:
(a) 1 and 2
(b) 1, 3 and 4
(c) 3, 4 and 5
(d) 2 and 5
Post your answers here.