SEBI’s IPO Allocation Reforms: A Game-Changer for Market Fairness

India's securities regulator just rewrote the IPO rulebook—and traditional finance should pay attention.

Streamlined Processes, Real Impact

SEBI's new framework slashes bureaucratic hurdles that plagued traditional IPO allocations. The reforms introduce transparent digital systems that bypass legacy intermediaries—cutting settlement times from days to hours.

What Crypto Can Learn From TradFi's Evolution

While decentralized finance preaches transparency, SEBI actually delivers it through auditable allocation algorithms. The regulator mandates minimum retail participation quotas—something even DeFi protocols struggle to implement fairly.

Of course, no regulatory move is perfect—the new system still lets institutional investors grab oversized allocations (because some traditions die harder than others). But when legacy finance starts moving at blockchain speed, you know the revolution's going mainstream.

Operational concerns

Following operational concerns raised by market participants, the regulator has relaxed the rules for anchor investors.

The limit on number of permissible anchor investor allottees based on the size of allocation has been increased, mainly to allow participation of foreign portfolio investors (FPIs).

FPIs had complained that since each FPI fund required a unique PAN, and since PAN was the identifier for each investor, it was a constraint on different FPI funds (with the same beneficial ownership) to invest through anchor portion.

For anchor allocations above ₹250 crore, SEBI has increased the permissible number of anchor investors from 10 to 15 per ₹250 crore or part thereof. Besides, it merged Category I and II alternate investment funds (AIFs), so that all anchor allocations up to ₹250 crore permit two to 15 investors, with minimum allotment of ₹5 crore per investor.

It may be mentioned that the treatment of FPIs is different compared to MFs where schemes of a fund are considered as a single application for allotment, given MF has one PAN.

Insurance, Pension funds

Besides, SEBI has also enhanced norms so that life insurance companies and pension funds can participate in the anchor book by allowing life insurance companies registered with Insurance Regulatory and Development Authority of India (IRDAI) and pension funds registered with Pension Fund Regulatory and Development Authority (PFRDA) to participate in the anchor portion under domestic mutual funds category. The quota for MFs has increased from 33 per cent to 40 per cent in an IPO so that the two long-term institutions can participate in the IPO.

These proposals are welcome as it will help improve participation of large FPIs with multiple funds and reduce artificial constraints in anchor book. Expanding the institutional investor base, no doubt, will provide much needed flexibility in anchor investor structuring, and boost participation of stable capital sources in alignment with best global practice.

However, it seems SEBI has temporarily shelved the proposal to cut retail quota in large IPOs (in excess of ₹5,000 crore) from 35 per cent to 25 per cent. SEBI said that decision was taken after reviewing the responses and examining alternative measures.

The concerns of large issuers WOULD be addressed in a broader manner by reducing the minimum dilution requirement at the time of IPO, without necessitating any changes to the existing IPO allocation framework (retail quota a 35 per cent).

SEBI can revisit the norms once again and may consider a gradual reduction from 35 per cent to 30 per cent and 25 per cent over the period, given the large upcoming IPOs such as Tata Capital, LG Electronics and the National Stock Exchange.

Published on September 26, 2025