The Securities & Exchange Board of India (Sebi) is likely to introduce price secrecy

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in institutional investors’ bids in the French auction of subscriptions to public issues, two persons familiar with the matter told Financial Chronicle.

In the French auction, allowed since November 2009, institutional investors have the freedom to place bids above the floor price, and they get allotments on a price priority basis. This means that investors who place bids at higher prices get preference.

Non-institutional investors such as retail and high net worth individuals bid at the floor price in this method. Sebi allows this alternative method of book building only in follow-on public offers (FPOs). But it may introduce the system in initial public offers too in the near future.

The French auction method of book building was tried in the recent FPOs of NTPC and REC. Some big institutional investors who had taken part in these two issues have expressed concerns about lack of price secrecy in this method.

“Price quotes should not be made public in an auction,” said a senior LIC official. “Also, price of the bid should be submitted in a sealed envelope to avoid leakage of this sensitive information,” he added.

Stock exchange websites now provide details of various price points at which bids coming in while an issue is on. “Sebi will ask stock exchanges not to provide these data,” an investment banker familiar with the development said. “However, the overall category-wise subscription figures will be available on the websites during the issue period,” he said.

An e-mail query sent to Sebi’s spokesperson remained unanswered at the time of going to press.

In the REC issue, LIC had put in bids worth Rs 3,000 crore at Rs 205, which was Rs 2 higher than the floor price of Rs 203. However, the insurance behemoth did not get a single share as some other investors put in bids above Rs 205 in the last few minutes of the issue. This exposed the loophole in the current system.

Price secrecy in the auction method will help avoid this kind of a scenario in future issues, the LIC official quoted earlier said.