SEBI & IPO Rules/SEBI Guidelines on IPO Allotment Process

SEBI Guidelines on IPO Allotment Process

Overview

The IPO allotment process in India is governed by the SEBI (Issue of Capital and Disclosure Requirements) Regulations (ICDR). These regulations ensure fairness, transparency, and equal treatment of all investors.

The basis of allotment is finalized by the designated stock exchange in consultation with the lead merchant banker and the registrar to the issue.

Investor Categories Defined by SEBI

  • Retail Individual Investors (RII): Applicants investing up to ₹2,00,000
  • Non-Institutional Investors (NII): Applicants investing more than ₹2,00,000, including HNIs
  • Qualified Institutional Buyers (QIB): Institutions such as mutual funds, banks, and FPIs

Reservation of Shares

SEBI mandates minimum reservation of shares in a Mainboard IPO as follows:

  • QIB: 50% of the net issue
  • NII: 15% of the net issue
  • Retail: 35% of the net issue

SME IPOs follow exchange-specific rules, but the allotment principles remain aligned with SEBI guidelines.

Basis of Allotment

SEBI requires that the basis of allotment must be finalized in a fair and proper manner, without any discretionary preference for individual investors.

Allotment in Undersubscribed IPOs

  • All valid applicants receive full allotment
  • No lottery or proportionate reduction is applied
  • Funds are debited only for the shares actually allotted

Allotment in Oversubscribed IPOs

When demand exceeds supply, SEBI-prescribed allotment mechanisms are applied depending on the investor category.

Retail Category Allotment (RII)

  • Allotment is done on a lot basis
  • Each valid retail applicant is considered equally
  • If applications exceed available lots, a computerized lottery is conducted
  • Only one lot is allotted per PAN in oversubscription

NII Category Allotment

  • Allotment is done strictly on a proportionate basis
  • Higher application amounts receive proportionately more shares
  • No lottery mechanism is available for NIIs

QIB Category Allotment

  • Allotment is proportionate but allows discretionary allocation
  • Institutional strength and long-term holding capability are considered

Cut-Off Price and Bid Price Rules

  • Cut-off bids are treated at the final discovered price
  • Cut-off bids get priority over price bids below cut-off
  • Bids below the cut-off price may receive partial or zero allotment

Minimum Allotment Rule

SEBI mandates that if a retail investor is allotted shares, the allotment must be at least one minimum lot.

If proportionate calculation results in less than one lot, allotment is done only via lottery.

Allotment Timeline and ASBA

  • Funds are blocked using ASBA
  • Unblocking of funds happens after final allotment
  • Shares are credited before listing on the exchange

Key Takeaways

  • Retail allotment depends on number of applicants, not bid size
  • NII allotment is purely mathematical and proportionate
  • QIBs receive discretionary flexibility
  • Final allotment is approved by the stock exchange and registrar
  • SEBI defines the process, not the allotment outcome
SEBI Guidelines on IPO Allotment Process | IPO Allotment Probability Calculator