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IPO process to become dangerous
Mon, 26 Jul Pre-Open

The stock market regulator SEBI has stepped in several times in the past to protect small investors from greedy promoters and fund managers. There is no denying this fact. But there have also been instances when what the regulator did was detrimental to the interests of small investors.

Take for instance one regulation that the SEBI is thinking as of now. That of having separate days for retail investors and institutional investors when it comes to applying to IPOs.

SEBI is considering a proposal wherein institutional investors would be first asked to submit their bids for an IPO, possibly in the first two days. Then the remaining two days would be open only for retail investors. This is provided the IPO is open for four days.

The thought behind such a thought is ridiculous, and serious!

The SEBI thinks that retail investors have traditionally followed cues from large institutional investors in putting in their bids on the last day of an IPO. So if the big investors pour money into an IPO, retail investors are seeing toeing their line. And if big investors do not like a particular IPO, retail investors again follow suit and shun the issue.

However, in recent times, even the big investors have been seen waiting till the last moment. This has led to a large chunk of retail investors missing on the opportunity to invest in the IPOs where institutional investors have come in during the last hours.

Thus the SEBI is thinking of separately allowing these two categories of investors to apply to IPOs. It thinks that it will help a retail investor to take cues from the institutional investor and do whatever the latter is doing.

Nothing can get more annoying than this!

Why is the SEBI trying to direct the action of the retail investor to whatever the big guy on the street is doing? Hasn’t it taken lessons from the past where retail investors have burnt their fingers just because they did whatever the institutional investors were doing? We continue to wonder. Do you have any answer?

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Mar 22, 2018 11:47 AM