SEBI to roll out UPI as alternative payment mechanism for retail IPO investors

On November 1, with an aim to decrease an IPO’s listing time (from 6 days to 3 days), increase the existing system’s efficiency, and curtail the need for manual intervention, securities market regulator, the Securities and Exchange Board of India (SEBI), announced its plans of launching Unified Payments Interface (UPI) which will act as an alternative payment option for retail investors, buying shares in a public issue, in a phased manner from January 1, 2019.

A revolutionary digital payment system developed by the National Payments Corporation of India (NPCI) and regulated by the Reserve Bank of India (RBI), UPI is an instant real-time payment system that allows instant transfer of funds between two bank accounts on a mobile platform using a payment address which uniquely identifies a person's bank account.

Consulting with stakeholders in this regard, SEBI thus decided to introduce the use of UPI as a payment mechanism with Application Supported by Blocked Amount (ASBA) for applications in public issues by retail investors through intermediaries.

ASBA is an application made by an investor, containing an authorization to Self-Certified Syndicate Bank (SCSB) to block funds available in applicant’s Savings Bank Account or Current Account (other than Overdraft or loan accounts), for subscribing to an Issue, to the extent of application money, till finalization of allotment in the issue or till withdrawal/failure of issue, or till withdrawal/rejection of application, as the case may be. It is a supplementary process available for all public issues made through book building route and also to all Debts & Right Issues.

SEBI reiterated, "The proposed process would increase efficiency, eliminate the need for manual intervention at various stages, and will reduce the time duration from issue closure to listing by up to 3 working days."

The regulator added, "From January 1, 2019, the UPI mechanism for retail investors through intermediaries will be made effective along with the existing process and existing timeline of T+6 days. The same will continue, for a period of 3 months or floating of 5 main board public issues, whichever is later. Thereafter, for applications by retail investors through intermediaries, the existing process of physical movement of forms from intermediaries to self-certified syndicate banks (SCSBs) for blocking of funds will be discontinued. Subsequently, final reduced timeline will be made effective using the UPI mechanism."

SEBI then instructed all entities involved in the process to co-ordinate with one another in order to ensure the completion of listing of shares and commencement of trading in phase I by T+6. In Phase II, according to SEBI, such entities shall aim to expeditiously complete the process of listing of shares and commencement of trading, in any case, not later than T+6.