When an investor, typically a small investor invests in an IPO, the expectation is that this will be a fair process and that he stands a fair chance of getting the stock applied for, if everything goes fairly. However, if there are people who are trying to manipulate the system, then the companies who are carrying out the IPO execution and allotment need to make sure that any attempts to manipulate the system don’t work. However, as we have seen in the past, such things don’t always happen.

The Securities and Exchange Board of India (Sebi) has imposed a fine of Rs 3 crore on the Central Depository Services (CDSL) and Rs 5 crore on National Securities Depository (NSDL), alleging “various lapses and irregularities” on their part, which resulted in distortion in allotment during recent IPOs. In two separate orders dated April 27, the market regulator said key operators opened a large number of fictitious/benami accounts with the two depositories, which enabled them to corner shares in the retail portion of the IPOs between 2003 and 2005.
According to Sebi, as many as 34,924 different accounts were opened with depository participants affiliated to NSDL, and 21,698 afferent accounts were opened with depository participants affiliated to CDSL. As part of the investigation, Sebi checked the trading pattern in 21 IPOs including TCS, Jet Airways, Yes Bank, NTPC, IDFC, between 2003 and 2005.

If these institutions such as CDSL and NSDL don’t carry out their responsibilities properly, then it is a gross violation of the trust that they carry. It also lowers the confidence of the normal retail investor in the fairness of the market, and that is a very bad thing to happen, something to be avoided at all costs.