Should you invest in an IPO or not? Now you won't have to worry too much, it'll be easy to understand...

The Securities and Exchange Board of India (SEBI) has introduced a proposal to introduce a separate "Offer Document Summary" for IPOs. This will concisely provide essential company information. It also proposes to simplify the process related to pre-IPO pledges. SEBI stated on Thursday, "Offer documents are often very lengthy and often deter investors from reading them. This prevents them from fully participating in the IPO process and from expressing their opinions on the information contained in the documents."

Offer documents typically contain a wealth of information in several sections. For example, the company's industry, its business history, its financial health, and whether it has any pending litigation, management's opinion, the IPO process, and the company's regulations. These sections often contain highly detailed legal, financial, and technical information, as they disclose all the essential details of a public issue. Regulators conduct their inspections based on this document, and the public can also access it.

'Investors will be protected from misinformation'

SEBI stated that it has been observed that investors often rely on unregulated sources, such as gray market trends and unverified news on social media, to make investment decisions. Since information from these sources is often inaccurate, investors shouldn't rely on it. If the company itself concisely provides key information, reliance on such sources may be reduced.

SEBI stated that due to the large size and complexity of a public issue, key information related to the offer document is scattered across multiple sections. Mandating a short and standardized summary of the offer document could facilitate easier access to information. SEBI has sought public comments on this by December 4th.

SEBI will relax lock-in rules

The regulator has also suggested relaxing the lock-in requirements for shares during an IPO. Companies face difficulties in complying with lock-in rules where shares are pledged before the IPO. Under the current rules, pre-IPO shares held by promoters and others are required to be locked in for a certain period.

The current depository system does not allow lock-in of pledged shares. This creates difficulties for companies at the time of IPO. SEBI said that the current rules allow promoters to pledge their locked-in shares. If promoters have pledged their shares before the IPO, they can redeem them with the consent of the lenders and initiate the lock-in process.

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