Roles and Responsibilities in a Public Issue

What this chapter covers

Chapter 10 carries 6 marks out of 100 — 6% of the paper.

Learning Objectives: After studying this chapter, you should know about the role and responsibilities in a Public Issue and the parties involved, payment facilities available: Registrar and Transfer Agents · Sponsor Bank · Bankers to an Issue · Brokers to the Issue / Syndicate Members · Application Supported by Blocked Amount (ASBA) facility with Unified Payment Interface (UPI)

An issue of shares by a company involves detailed activity, co-ordination and compliance with regulatory requirements. The lead manager to the issue is primarily responsible for the issue process. The other entities who are involved include the registrar and transfer agents, bankers and brokers to the issue.

And the rules are the regulator's, not the lead manager's: the role and responsibility of each constituent is clearly laid out by SEBI. All constituents who are involved with an issue have to be registered with SEBI under the relevant regulations.

The first sample question tests that sentence — it is false that the lead manager defines each constituent's role. SEBI does.

10.1 The Registrar and Transfer Agent

The R&T agents have a significant role to play in a public issue of shares. They are appointed by the issuer in consultation with the lead manager to the issue and enter into an agreement detailing their responsibility in the issue work.

Appointed by the issuer, in consultation with the lead manager.

The scope of activity of the R&T agents is spread before the issue opens, during the period of issue and after the issue closes.

Pre-issue work

To enter into an Escrow Agreement with the Company, Selling Shareholders, the book running lead managers (BRLMs) and the Bankers to the Offer where-in the Registrar shall issue requisite instructions to the Bankers to the Offer in terms of the Escrow Account Agreement.

If applicable to enter into a Share Escrow Agreement with the Company and the Selling Shareholders... in terms of which the Selling Shareholders shall prior to the filing of the Red Herring Prospectus open a share escrow account (Share Escrow Account) with the Registrar wherein the Selling Shareholders shall transfer its Offered Shares. The Registrar shall operate the said Share Escrow Account in terms of the instructions issued by the BRLMs.

Note that the registrar holds the offered shares in escrow in an offer for sale — opened prior to the filing of the Red Herring Prospectus.

To enter into the 'Syndicate Agreement'... and an 'Underwriting Agreement'... in terms of which the members of the Syndicate shall fulfil their underwriting obligations and the Registrar shall provide the necessary notices and perform such other functions as may be agreed upon.

Liaising with the Depositories on behalf of the Company for obtaining the International Securities Identification Number (ISIN) and for finalising the tripartite agreement to be entered into with the Depositories.

The ISIN is obtained through the registrar.

Liaising with the Company for dematerialization of the Equity Shares held by the existing shareholders of the Company in physical form, including, the Promoters, the Selling Shareholders and members of the Promoter Group, if any, prior to the filing of the Draft Red Herring Prospectus.

Provide detailed instructions to the Self-Certified Syndicate Banks (SCSBs), including the format and timeline of receipt of information.

Provide/specify the format to the Designated Intermediaries in which information in relation to ASBA is required.

Intimation on the amount of processing fees payable to SCSBs in respect of syndicate ASBA and brokerage and selling commission payable to the members of the Syndicate, Registered Brokers, RTAs and CDPs.

Post-issue work

The sole responsibility of the Registrar is to procure and collect the final certificates from all the SCSBs, including the syndicate SCSBs, participating in the Offer, within two working days from the closure of the Offer.

Two working days from closure.

While collecting the final certificates, the Registrar shall check the accuracy of the date of such certificates and confirm that such certificates, duly signed on the letterhead/stamped, have been received within specified time limit.

To obtain from the Depositories the Demographic Details of the Bidders (including PAN) and to validate this data with the Bid file and highlight any discrepancies.

Then a detailed list of tasks:

a) Prepare rejection list based on the electronic Bid files received from the Stock Exchanges without reference to the physical Bid cum Application Forms;

b) Deliver the Bid file received from the Stock Exchanges containing the application numbers, number of Equity Shares, amount and any other additional fields as may be required to all the SCSBs who shall use such information for due validation;

c) Reconcile the compiled data received from the Stock Exchanges and all SCSBs, and match the same with the depository database for correctness of DP ID, Client ID and PAN;

Three identifiers matched — DP ID, Client ID and PAN.

d) To ensure that the Basis of Allotment is in accordance with the SEBI (ICDR) Regulations, guidelines and notifications and as specified in the Offer Documents;

e) To assist in seeking approval of the Basis of Allotment with the Designated Stock Exchange... along with the BRLMs and the Company;

f) To prepare the complete list of valid applications (after all rejections), and present the same category-wise;

g) To prepare a statement of Bids proposed to be rejected, separately for QIBs, Non-Institutional Investors and Retail Individual Investors;

h) To prepare a technical rejection list, including rejected Bids, based on the electronic Bid files received from the Stock Exchanges and the Depositories' database;

i) To send the Confirmation Allocation Note (CAN) to the Anchor Investors and the Allotment Advice to Bidders as applicable who have been Allotted Equity Shares in the Offer;

CAN to anchor investors; Allotment Advice to other bidders.

j) To keep accurately, at all times, the electronic records relating to Bids received from all SCSBs, the Designated Intermediaries and the BRLMs, covering bids from the exchanges and SCSBs, particulars relating to the allocation and Allotment of Equity Shares against valid Bids, particulars of money to be transferred to the Public Offer Account, and particulars relating to, rejected/unsuccessful Bids.

k) To specifically record cases of multiple Bids and keep them available for inspection.

l) To prepare distribution schedule and analysis form (for purposes of the Stock Exchanges or the Company).

The registers

m) Prepare the following registers and other data:

i. Top 50/100 shareholders (for the Stock Exchanges) ii. Allotment registers iii. Register of members iv. Index of members v. Return of Allotment (for the Registrar of Companies) vi. Cross Reference Register vii. Postal journal for documents mailed viii. Number of Equity Shares to be allotted against each valid Bid and the list of successful Bidders ix. Details of rejected Bids, if any, along with reasons for rejection and details of unsuccessful Bids, if any, to enable the Bankers to the Offer or the SCSBs to refund the amount or unblock the relevant bank accounts.

The third sample question asks who prepares the Register of Members and Allotment Registers — the Registrar and Transfer Agents.

n) In case of failure of the Offer, to give appropriate instructions for unblocking of the relevant ASBA bank accounts/issuance of instructions for refund to the Anchor Investors.

And two final duties:

To give instructions to the Depositories to carry out lock-in for the pre-Offer share capital (except the Offered Shares, ESOP etc.) as per the SEBI (ICDR) Regulations.

To dispatch Allotment Advice / intimations and credit of the equity shares to the allottees' respective demat accounts.

10.2 The Sponsor Bank

The Sponsor Bank is registered with SEBI as Banker to an Offer in terms of SEBI (Bankers to an Issue) Regulations, 1994 and has obtained Unified Payment Interface (UPI) certification from National Payments Corporation of India (NPCI) and is registered with SEBI as a Sponsor Bank.

Three credentials — SEBI registration as banker to an offer, NPCI's UPI certification, and SEBI registration as sponsor bank.

Further, the Sponsor Bank ensures that applications by only Retail Individual Investors shall be made through the UPI mechanism.

Its function: Sponsor Bank shall be act as a conduit between the Stock Exchanges and NPCI in order to push the mandate collect requests and/or payment instructions of the retail investors into the UPI mechanism.

A conduit between the exchanges and NPCI.

10.3 Bankers to the Issue

Banker to an issue means a scheduled bank or such other banking company, as specified by SEBI, to carry out activities such as: (i) acceptance of application and application monies; (ii) acceptance of allotment or call monies; (iii) refund of application monies; and (iv) payment of dividend or interest warrants.

Four activities.

The bankers to the issue are appointed by the Issuer for Anchor Investors, to manage the collection of funds in the issue into the escrow account opened for the purpose.

The fourth sample question tests who appoints them for anchor investors — the issuer.

A widening of eligibility: SEBI has permitted the non-scheduled Payments Banks, having prior approval from RBI, to register as Bankers to an Issue. These non-scheduled Payments Banks are also allowed to act as a Self-Certified Syndicate Bank, subject to the fulfilment criteria specified by SEBI. The blocking or movement of funds between investors and issuers will only be through the savings account of the investor held with these payments banks.

10.3.1 ASBA

SEBI has made Applications Supported by Blocked Amount popularly known as "ASBA", as mandatory mode of payment in Initial Public Offerings and Rights Issues for all categories of Investors from January 1, 2016.

Mandatory since 1 January 2016, for all categories — which the second sample question tests.

ASBA is an application for subscription to an issue containing an authorisation to the investors' bank to block the application money in his bank account.

The money never leaves the investor's account until allotment.

For availing this facility, the investor's bank should have been registered with SEBI as Self Certified Syndicate Bank (SCSB). The SCSB will identify its designated branches (DB) where the ASBA investor can submit his form. All the DBs of an SCSB will be controlled by one branch of that Bank which will be designated as Controlling Branch (CB).

Designated branches take the forms; one controlling branch oversees them all.

All investors will be eligible to apply through the ASBA process. SCSB is required to give ASBA investors an acknowledgement for receipt of ASBA.

Three additional channels:

Online ASBA: This facility can be availed through an online portal of SCSB. The SCSB will send the application to the RTA and block funds in shareholders account.

Physical ASBA: This can be availed physically at a SCSB branch. The SCSB will send the application to the RTA and block funds in shareholders account.

Additional Online mode: This mode is availed through the linked online trading-demat-bank account provided by some brokers.

The ASBA process

An ASBA investor shall submit the application physically or through electronic means to the SCSB with whom the bank Account to be blocked is maintained. The SCSB will block the application money in the investor's account, which will remain so till finalisation of the basis of allotment or till withdrawal of the issue or withdrawal by the applicant.

Three events end the block — allotment finalised, issue withdrawn, or applicant withdraws.

The SCSB thereafter will upload the application data through a web-enabled interface to be provided by the stock exchanges.

After the basis of allotment is finalised, the registrar shall apply the basis and identify against each one of the ASBA investor the number of shares, if any, allotted and the amount if any to be appropriated for the allotment made and the balance amount to be unblocked/refunded. This information will be furnished by the registrar to the controlling branch who in turn debits the required amount from the investors account to be given to the issuer for the shares allotted. They will also unblock the balance amount in the account of the investor on receipt of instructions from the registrar.

The registrar calculates; the controlling branch debits and unblocks.

Withdrawal: ASBA investor interested in withdrawing his/her application during the bidding process will approach the SCSB and request for deletion of the bids. SCSB will do the necessary to delete the bids from electronic bidding system and unblock the bank account.

Syndicate/sub-syndicate members/designated intermediaries may procure ASBA forms from the investors and submit it to the Self Certified Syndicate Banks (SCSBs), and would then upload the bid and other relevant details of such ASBA forms in the bidding platform provided by the stock exchanges and forward the same to the respective SCSBs. SCSBs shall carry out further action for such ASBA forms such as signature verification, blocking of funds etc. and forward these forms to the registrar to the issue.

A "syndicate member" means an intermediary registered with SEBI and who is permitted to accept bids, applications and place orders with respect to the issue and carry on the activity as an underwriter.

Compensation for failures: SEBI has also suggested uniform policy for minimum compensation payable to Retail Individual Investors (RIIs) in an IPO due to error or failure on part of SCSBs resulting in rejection in the applications submitted by RIIs, and policies providing a mechanism of compensation to investors for delay in unblocking of application amounts by SCSBs. Investors are sent timely information about blocking/unblocking of application amounts through SMS alerts.

The registrar's ASBA duties

1. Registrar to the Issue shall obtain the electronic bid data (including the ASBA bid data) from the Stock Exchange(s) and match the DP ID, Client ID and PAN specified in the electronic bid file with the depository's database, for the purpose of acceptance of applications and finalisation of the basis of allotment.

2. Registrar to the issue shall intimate before opening of the issue the basis of commission payable to SCSBs, the bid/issue opening and closing date/time, including details of revision in price band/floor price/bidding period, if any to SCSBs.

3. Once the basis of allotment is approved by the Designated Stock Exchange, the Registrar to the Issue shall provide the following details to the Controlling Branch (CB) of each SCSB, along with instructions to unblock the relevant bank accounts and transfer the requisite money to the issuer's account:

(i) Number of shares to be allotted against each valid ASBA. (ii) Amount to be transferred from the relevant bank account to the issuer's account, for each valid ASBA. (iii) The date by which the funds... shall be transferred to the issuer's account. (iv) Details of rejected ASBAs, if any, along with reasons for rejection and details of unsuccessful ASBAs, if any, to enable SCSBs to unblock the respective bank accounts.

4. The Registrar to the Issue shall be responsible for the correctness and validity of the information furnished by it to SCSBs and shall be liable for all its omissions and commissions in discharging its responsibilities in the ASBA facility.

Liable for its own omissions and commissions.

5. Registrar to the Issue shall act as a nodal agency for redressing complaints of ASBA, including providing guidance to ASBA investors regarding approaching the SCSB concerned.

6. Registrar to the Issue shall maintain accurately, at all times, the electronic records relating to ASBAs received from all SCSBs, covering bids taken from the exchange's electronic bidding system and furnished by SCSBs, particulars relating to allotment of equity shares against valid ASBAs, particulars of money to be transferred to the issuer's account, and details of rejected/unsuccessful ASBAs.

The fifth sample question tests that duty — it is true.

10.3.2 The UPI mechanism

Unified Payment Interface (UPI) is an instant payment system developed by the NPCI. It enables merging several banking features, seamless fund routing & merchant payments into one hood. UPI allows instant transfer of money between any two persons' bank accounts using a payment address which uniquely identifies a person's bank account.

Why it was brought into ASBA: to increase efficiency, eliminate the need for manual intervention at various stages, and reduce the time duration from issue closure to listing.

SEBI... has introduced the use of Unified Payment Interface (UPI) as a payment mechanism with Application Supported by Blocked Amount (ASBA) for applications in public issues by retail individual investors through intermediaries (Syndicate members, Registered Stock Brokers, Registrar and Transfer Agents and Depository Participants) in a phased manner from January 1, 2019.

The UPI mechanism for public issues is available for application value upto Rs. 5 lakhs.

Retail investors, through intermediaries, up to Rs. 5 lakh, from 1 January 2019.

In addition to SMS alerts, UPI Apps, eligible for public issues, shall send invoice in the inbox to verify the UPI mandate details.

The registrar's UPI duties

1. Registrar to an issue or other specified intermediaries in the issue process shall, at the time of receipt of application, provide an acknowledgement to investor, by giving the counter foil or specifying the application number to the investor, as a proof of having accepted the application form, in physical or electronic mode, respectively.

2. Registrar shall obtain electronic Bid details from the Stock Exchanges immediately following the Bid/Offer Closing Date. The Registrar to the Offer shall provide the file containing the Bid details received from the Stock Exchanges to all the SCSBs (including the Sponsor Bank) on the Bid/Offer Closing Date who may use the file for validation/reconciliation at their end.

3. Registrar shall reconcile the compiled data received from the stock exchange(s), all SCSBs and Sponsor Bank and reject multiple applications determined based on common PAN.

Multiple applications are caught by PAN.

4. Registrars shall submit the details of cancelled/withdrawn/deleted applications to SCSB's on daily basis within 60 minutes of bid closure time from the Issue opening date till Issue closing date (T) by obtaining the same from Stock Exchanges. SCSB's shall unblock such applications by the closing hours of the bank day and submit the confirmation to the Lead Managers and RTA on daily basis.

Within 60 minutes of bid closure time, daily.

5. In respect of bids made by Retail Individual Bidders using UPI ID, Registrar shall share the debit file post approval of the Basis of Allotment with the Sponsor Bank to enable transfer of funds from the ASBA Account to the Public Offer Account.

6. The unblocking of UPI mandates for non-allotted/partial allotted applications to be completed by T+2 days (T being the issue closing day).

How a UPI application works

As part of bidding: the investor will fill in the bid details in the application form or the mobile device/web interface of the intermediary along with his UPI ID; the intermediary will upload the bid details along with UPI id in the stock exchange bidding platform; and the stock exchange will electronically share the bid details, along with investors UPI id, with the Sponsor Bank appointed by the issuer company.

As part of blocking: the Sponsor Bank will request the investor to authorize blocking of funds equivalent to application amount and subsequently debit funds in case of allotment. The request would be electronically received by the investor as SMS/intimation on his/her bank provided mobile no./mobile app is linked to UPI ID, and upon validation of mandate fund block request by the investor by entering his UPI PIN, the funds would get blocked in investors account.

As part of payment post-allocation: the registrar to the issue, based on information of bidding and blocking received from stock exchange, would undertake reconciliation and prepare the basis of allotment. Upon approval of such basis, the instructions would be sent to sponsor bank to initiate process for credit of funds in the public issue escrow account and unblocking excess money.

Based on authorization given by investor using UPI PIN at the time of fund blocking, the funds, equivalent to the allotment, would be debited from investors account and remaining funds, if any, would be unblocked.

10.3.3 Standardised UPI IDs

With an objective to enhance accessibility and safety in the securities market, SEBI proposes to offer structured Unified Payment Interface ('UPI') option for investors making payments to market intermediaries. The transfer of funds through this mechanism will assure investors that their payments are being made to the verified and registered market intermediaries. A verified UPI ID is linked to a validated bank account of the user thus ensuring secure transactions.

RTAs are required to make this facility available by October 1, 2025. The investor shall be at liberty to use UPI or any other payment mechanism.

The registrar's responsibilities here:

1. Create investor awareness about UPI payment handles and "SEBI Check" functionality through modes like SMS, e-mail communications, social media posts and audio-visual messages.

2. Create awareness and educational content for investors by placing relevant FAQS on respective websites.

10.4 Brokers to the issue

Brokers to the issue are appointed to facilitate the collections of application forms and bids. They are members of stock exchanges. They are responsible for collecting the bid/application forms and ensure that it is accompanied by a payment instrument. They are paid a commission for their role depending upon their collection.

10.5 The T+3 listing timetable

Sequence of Activities — Listing within T+3 days (T is Issue Closing Date)

Application submission on T day

Electronic before physical; retail-friendly channels latest.

The rest of the timetable

Note that QIB and NII bidding closes an hour earlier than retail — 4 pm against 5 pm.

The sample questions confirm that it is false that the lead manager defines each constituent's role — SEBI does; that application supported by blocked amount is the mandatory mode of payment; that the Registrar and Transfer Agents prepare the Register of Members and Allotment Registers; that bankers to an issue are appointed by the issuer for anchor investors; and that it is true that the Registrar must maintain accurate electronic records of ASBAs at all times.