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New SEBI Listing Norms To Curb IPO Abuse


IPOs have gone down massively in the recent past (see IPOs largely suck in 2010-11) and a large number of them have gone down over 80% from listing prices. Many are small issues, manipulated up on the first day, attracting investors, only to later slump to levels hitherto unheard of. SEBI now has announced norms to curb misuse of the listing day freedom.

To plug the high volatility, all new listings will have circuit limits from day one (currently, there’s no circuit). A new listing post IPO will have an auction similar to the pre-trade auction for one hour, where you can enter limit or market orders which won’t get executed until the end of the auction hour. The best price is then found by matching orders and the “equilibrium” price is used as the open for the subsequent part of the day (with appropriate circuits in place).

And then, for IPOs of less than 250 crore, the stock trades in “Trade for Trade” segment – meaning, you pay 100% margin for all buys, and you can’t sell unless you own the stock (no intraday short sells). Trade-for-trade applies for the first 10 days, only for IPOs less than 250 cr. 

While this is a good step, what it will really do is to move the manipulation to the first day AFTER the curbs are removed. However, the signal that SEBI is watching may just be enough for operators to stop the rampant abuse of the system that is currently happening. I think we simply need more IPOs, from the likes of Indigo airlines to Flipkart to Tata Capital, to fuel capital markets (and interest back into IPOs). I really don’t get the concept of selling IPO stock at a huge premium – it’s better to conservatively place stock and then make the big money on a follow on issue a year later. Sadly, we are all greedy pigs.


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