SEBI - "Securities and Exchange Board of India" is discussing a proposal wherein Qualified Institutional Bidders (QIB) may have to fork out 100% margin money upfront while placing a bid for allotment of shares offered thru IPOs. As of now the rule asks QIBs to put in a margin money of 10% while placing a bid.
Every IPO that hits the market has a portion of allotment going to QIBs. At present, Sebi guidelines prescribe a quota of 35% of shares on offer in a public issue for retail investors, 15% for high net worth individuals and 50% for QIBs. This section usually gets oversubscribed as the bidders are not required to put in the whole amount and just a small sum for placing orders. This leads to many bogus bidders placing their orders and the orders being placed in high numbers.
The affect of QIB portion getting oversubscribed is seen on the Retail section as well. As the Retail investors look upon the status of QIB section, Retail investors also go gung-ho, while putting in their applications, resulting in Retail section getting oversubscribed.
SEBI's decision to ask QIBs to put in the whole amount while placing application for allotment is a welcome move and will help in maintaining parity in the market among Retail Investors and QIBs. Also this will help in reducing the number of applications placed for allotment under QIB section and only legitimate and serious investors will be in the fray for allotment. For the Retail investor, this will lead to a lucid picture of how valueable the IPO is.
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