SEBI prohibits incentives to lure investors to public debt issue

The Securities and Exchange Board of India has prohibited payment of incentives by a person connected with a public issue of debt securities to a potential investor for making an application for allotment of specified securities.

Some brokers/ distributors were passing on part of their brokerage or commission to the final investors for subscription to such public issue of debt, giving an unfair advantage to some investors adding to the cost of issuance for the company, it said in a circular on its website.

"As a result, while on one hand it is giving an unfair advantage/bargaining power to a certain set of investors and distributors, on the other hand it is adding to the cost of issuance for the company," Sebi said in a circular.

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In order to curb such practices, Sebi said "it is advised that in respect of public issues of debt securities, no person connected with the issue shall offer any incentive, whether direct or indirect...to any person for making an application for allotment of specified securities".

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Sebi said the circular has been issued to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market.

Agencies