SEBI (ICDR) REGULATIONS 2023: A CRITICAL

ANALYSIS
Securities and Exchange Board of India (SEBI) introduced SEBI (Issue of Capital and
Disclosure Requirements) (Second Amendment) Regulations 2023

focuses on
These amendments modify SEBI (Issue of Capital and Disclosure Requirements)
provisio Regulations 2018
ns
 The amendments have significant implications
• Focuses on for issuers and intermediaries, particularly in
Regulation 40 of terms of regulatory compliance.
SEBI (ICDR)  Key changes were made to Regulations 40 and
Regulations 136, concerning underwriting in Initial Public
2018, and Offers (IPOs) and Further Public Offers
Regulation 136 (FPOs), respectively
provisions
 AMENDMENT TO REGULATION 40(1) AND 40 (2)
OF SEBI (ICDR) 2018
Amendment to Regulation 40(1) of SEBI (ICDR) 2018
 Underwriting agreement required for IPOs other than through a book-built issue.
 Agreement with merchant banker or stock brokers registered with SEBI to cover under-subscription risk.
 Agreement specifies maximum number of securities subscribed directly or by procuring at a predetermined price, not less than
issue price.
 Issuer obligated to disclose underwriting agreement details in prospectus.

Amendment to Regulation 40(2) of SEBI (ICDR) 2018

 Provision for rejected applications.
 Issuer must enter underwriting agreement with merchant bankers or stock brokers.
 Agreement specifies number of securities subscribed directly or by procuring at predetermined price, not less than issue
price.
 Disclosure of agreement details in prospectus required.
 AMENDMENT TO REGULATION 40(3) OF SEBI
(ICDR) 2018
Amendment to Regulation 40(3) of SEBI (ICDR) 2018
 Issue, excluding portion reserved for Qualified Institutional Buyers (QIBs) under Regulation 6(2), underwritten by lead
managers and syndicate members.
 Underwriting agreement with lead managers and syndicate members entered prior to prospectus filing.
 Agreement specifies number of securities to be subscribed due to rejection of bids, either by lead managers and syndicate
members or by procuring subscription, at a price not less than issue price.
 Disclosure of underwriting agreement in prospectus is required.
 If issuer desires issue underwritten to cover under-subscription:
 Agreement with lead managers and syndicate members to dictate maximum number of securities subscribed by
them, at price not less than issue price.
 Disclosure of underwriting agreement in red herring prospectus.
 Lead managers obligated to fulfill syndicate members' obligations if they fail to take agreed number of securities.
 Neither lead managers nor syndicate members can subscribe to issue in excess of underwriting obligations.
ANALYSIS OF AMENDMENTS
 Crucial changes made by SEBI regarding underwriting mechanism for IPOs other than
through book-built issue and book-built issue IPOs.
 Amendments define who can underwrite the public issue, limiting it to merchant bankers
or stock brokers for IPOs other than through book-built issue.
 Book-built issues to be covered by lead managers and syndicate members, consistent
with old provisions.
 Under the amended regulations, underwriting of rejected applications or bids becomes
obligatory for the issuer.
 Old Regulation 40 focused only on under-subscription risk, while new changes mandate
coverage of rejected applications or bids, increasing IPO success by ensuring minimum
subscription.
 Increased transparency in capital markets with mandatory underwriting-related
disclosures in prospectus or red-herring prospectus under new changes.
 Underwriters now have the option to fulfill obligations by subscribing to securities in
their own names or by procuring subscription from third parties.
 Merchant bankers, stock brokers, lead managers, and syndicate members can invite third
parties to subscribe, with their subscription counted towards underwriting obligations.
 REGULATORY COMPLIANCE PERSPECTIVE OF THE
AMENDMENT
 For IPOs other than through the book-building process, issuer must enter agreements with merchant bankers or stockbrokers for
underwriting if they desire to cover under-subscription risk.
 For issues through book-building process, issuer must enter underwriting agreement with lead managers and syndicate members
to cover under-subscription risk.
 Underwriting agreements with respective intermediaries must be entered prior to filing prospectus or red herring prospectus.
 Agreements specify maximum number of securities subscribed to, either in general or on account of rejected applications or bids,
at predetermined price not less than issue price.
 Terms and conditions of agreements follow provisions of SEBI (ICDR) 2018 and SEBI (Merchant Bankers) Regulations 1992.
 Prospectus or red herring prospectus must disclose existence of underwriting agreement.
 In book-built route, at least 75% of net offer reserved for Qualified Institutional Buyers (QIB) not underwritten.
 Merchant bankers, stockbrokers, lead managers, and syndicate members allowed to subscribe to issue in their own name or
procure subscription of securities to fulfill obligations.
 Compliance with Regulation 22 of SEBI (Merchant Bankers) Regulations 1992 required, specifying minimum underwriting
obligation for lead merchant banker holding Category I certificate.
 Lead managers and syndicate members not permitted to subscribe to issue except for fulfilling underwriting obligations, except
under Regulations 40(1) or 40(2) of SEBI (ICDR) 2018.
 CONCLUSION
SEBI (ICDR) Regulations 2023 represents a significant stride by SEBI in fortifying the underwriting framework.

Major changes involve designating merchant bankers and stock brokers as underwriters for Regulations 40(1) and 40(2),
outlining their roles and responsibilities.

Mandates disclosure of underwriting agreement terms in prospectus, enhancing transparency.

Provides intermediaries with option to procure subscription towards underwriting obligation, adding flexibility.

Mandates underwriting for rejected applications or bids, potentially boosting IPO success by ensuring minimum
subscription even in case of rejections.

These changes are poised to enhance IPO success rates by addressing uncertainties previously present in Regulation 40.

Amendments are anticipated to bolster liquidity and transparency in Indian capital markets and streamline compliance
processes.