India: Compensation to Retail Individual Investors in an Initial Public Offering

March 3, 2018



The Securities and Exchange Board of India (hereinafter referred as ‘SEBI’) vide circular dated February 15, 2018, has stated that the Self Certified Syndicate Banks (hereinafter referred as ‘SCSB’) shall compensate the retail individual investors (hereinafter referred as ‘RII’) if there is failure on their part to make allotment in spite of the RII’s eligibility.

Failure on part of the Self Certified Syndicate Banks:

SEBI listed several instances wherein the RII in an IPO have not been allotted the specified securities and thus, have suffered an opportunity loss due to failure on part of SCSBs. Such instances include:

  • Failure in making bids in the Exchange system.
  • Failure to process the Applications Supported by Block Amount even when they have been submitted within time.
  • Other failures which have resulted in the rejection of the application form.

Uniform policy for calculation of minimum compensation to RIIs:

In order to bring uniformity in the calculation of compensation available to the RIIs, SEBI has stated that the compensation shall be calculated as below:

(highest opening listing price on the day of listing across the Exchange – issue price) *multiplied by* (no. of shares that would have been allotted if bid was successful) *multiplied by* (probability of allotment of shares determined on the basis of the allotment)

Further conditions:

  • The RII shall be compensated for all the shares which they would have been allotted, in case of issues which are non-oversubscribed issues.
  • If the listing price is below the issue price, SCSBs will not be liable to pay any compensation to the RII.
  • If an application has not been considered for allotment because of failure on the part of Self-Certified Syndicate Banks, the applicant shall have the option to seek redressal of the same within three months of the listing date with the concerned bank.
  • The SCSBs shall be required to resolve the issue on receiving redressal applications within 15 days and if they fail to do so, it will have to pay interest to the applicant at the rate of 15% per annum for any delay beyond the said period of 15 days.
  • SEBI may also initiate action if the SCSBs fail to redress such grievances within the stipulated time.
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