India’s capital markets regulator, the Securities and Exchange Board of India (SEBI) has prescribed a new method of payment for public issues through the book building process. The new method, called Applications Supported by Blocked Amount (ASBA), will enable applicants to subscribe to share issues without sending money in advance. The application contains an authorization to block the purchase funds in the applicant’s bank account until it is determined whether the application is successful. This eliminates the refund process, where the application money of retail investors is often blocked, or not refunded for weeks, if they have not been allotted the shares. The ASBA system will operate alongside the existing process, which normally involves payment by cheque.
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The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm that provides legal and tax counselling. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.
