To safeguard investors' interest in initial public offers, Sebi may ask companies to make greater disclosures about price discovery and issue certain convertible bonds to retail shareholders to ensure some guaranteed returns.
The new corporate governance norms for listed companies, currently being finalised by the Securities and Exchange Board of India, may also mandate greater disclosures regarding IPOs, sources said.
Through various measures currently in the pipeline with regard to primary markets, the sector regulator is planning to make it easier for companies to raise funds through IPOs while ensuring that small investors' interest remains paramount.
While filing of prospectus has already been made easier for the companies, Sebi is also considering to establish a direct contact with the promoters of IPO-bound firms unlike the current practice of communicating through merchant bankers.
While all filings would continue to be through bankers managing the public offers, companies and their promoters can also directly contact the regulator for any guidance and clarifications with regard to their IPO plans.
For the benefit of investors, Sebi may seek enhanced disclosures about key issues, while the IPO price discovery mechanism may be made more investor friendly, sources said.
Besides, Sebi is also looking to use the rejection mechanism for IPO documents to enhance credibility of the public offers.
These measures are being taken as part of Sebi's efforts to help investors in making more informed investment decisions.
The regulator is also considering issuance of Optionally Fully Convertible Bonds or certain other debentures as a 'safety net' guarantee to investors buying shares through IPOs.
Earlier, Sebi had proposed a mandatory safety net in IPOs, under which the company's promoters assure that they will buy back shares from retail applicants at the IPO price, if its stock falls sharply during the first six months after listing.
While such a provision is currently voluntary in IPOs and a few companies have also followed it, making it mandatory has met with strong resistance.
Consequently, Sebi is now proposing offering OFCDs for this safety net mechanism.
These bonds can either be redeemed at a pre-decided price if the stock falls below a threshold, or they can be converted into equity shares if the stock appreciates after listing on the bourses.
The IPO market has been very sluggish for many months despite a number of steps taken by Sebi for this segment.
The regulator has introduced an e-IPO mechanism, where an investor can apply in an electronic form through broker.
It also made it mandatory that every retail applicant in an IPO will get a certain number of shares, subject to availability.
Retail investors have also been allowed to open low-cost basic demat accounts.