Capital Markets: Challenges and Developments

SEBI tweaks share sale norms for IPOs


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.

Also read:

[Sansad TV] The IPO Boom


Try this question from CSP 2019:

Q.In India, which of the following review the independent regulators in sectors like telecommunications, insurance, electricity, etc.?

  1. Ad Hoc Committees set up by the Parliament
  2. Parliamentary Department Related Standing Committees
  3. Finance Commission
  4. Financial Sector Legislative Reforms Commission
  5. 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.
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