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Market regulator SEBI plans to introduce the safety net mechanism in the form proposed by it in the discussion paper. Speaking at an Assocham capital markets national conference, SEBI Chairman U K Sinha believes that the version in the discussion paper is a mild version.
“Our discussion paper is in the public domain. My personal sense is that we must introduce safety net mechanism, may be in milder form, primarily to give a signal not about returning money but that the pricing has been right,” he said.
He said that about two-thirds of the initial public offerings in the last three years were trading below the issue price after adjusting for general decline in the equity markets.
“While one side says it is a risk capital, how can anybody ask anybody to give guarantee and return the money, the other side says when two-third of the issues continuously trade below issue price year after year, month after month, even after adjusting for general decline in market, how can you expect retail investors to come to the market?” he added.
According to the discussion paper, the safety net mechanism would be triggered in the case of those IPOs whose price has fallen by more than 20 per cent from the issue price. The new safety net mechanism is a mandatory one. There is already a voluntary safety net mechanism available for IPO investors.
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