Looking to protect the interests of retail investors, the Securities and Exchange Board of India, on Friday, issued draft norms for mandatory safety net mechanism in IPOs.
The market regulator has sought comments from the public on the draft norms till October 31.
According to SEBI, the safety net mechanism would be available for all securities allotted to original resident retail individual allottees, who had made an application for up to Rs.50,000.
“The total obligation on safety net provider will be capped at 5 per cent of the issue size,” the market regulator said.
Noting that it would be mandatory for all IPOs, SEBI said the safety net provision would be triggered in cases where the price of the shares has depreciated by more than 20 per cent from the issue price. The price for this provision shall be calculated as the volume-weighted average market price of such shares for three months from the date of listing,” it said.
Further, the 20 per cent depreciation in share price would be considered over and above the general fall, if any, in the market index.
The market index for this purpose may be BSE-500 or S&P CNX 500 and the index to be considered for this purpose should be disclosed in the offer document.
The proposal for such a mechanism, discussed at SEBI’s board meeting held on August 16, is aimed at protecting the interest of retail investors.