How Can I Cancel My HNI Application?

Withdrawing an IPO application is a common investor dilemma. While retail investors have the flexibility to cancel their bids, HNIs cannot withdraw their applications once submitted. This often leaves HNIs in a tricky spot if they later wish to amend their IPO bid. Read on to understand IPO cancellation guidelines for HNIs, modification rules, and the rationale behind these SEBI regulations.

Can HNI Investors Withdraw their IPO Application?

IPOs (Initial Public Offerings) allow companies to raise capital by issuing shares to the public. HNIs (High Networth Individuals) are investors who bid for large ticket sizes, usually above ₹2 lakhs in IPOs. Once an HNI has submitted their IPO application, a key question that arises is – can they withdraw or cancel the application if they change their mind?

The answer, in short, is NO. SEBI guidelines do not allow HNIs and other large investors to withdraw their IPO bids once submitted. However, small retail investors can cancel their IPO application anytime when the issue is open for bidding.

This might sound unfair, but there is logic behind this rule. Let's analyse this in detail.

The Need for an IPO Withdrawal Facility

Investors apply for IPOs to get an allotment of shares at the IPO price. However, during the bidding period, investors track Grey market premiums and other indicators to gauge demand. At times, investors may change their minds about investing if the premiums drop substantially from expected levels. 

The IPO withdrawal facility allows investors, especially retailers, to cancel their bids if their view changes on the IPO valuation during this period. They can use the amount to apply for another upcoming IPO

Rules for IPO Application Withdrawal

As per SEBI guidelines, the rules for IPO application withdrawal vary depending on the investor category:

1. Retail Investors: Can withdraw/cancel their IPO bid anytime when the IPO bidding window is open.

2. HNIs: Cannot withdraw or cancel their IPO bid once submitted.

3. QIBs: They cannot withdraw or cancel their IPO bid once submitted.

In summary, retail investors can cancel their IPO application, but HNIs and QIBs cannot. Their IPO application, once submitted, must be retained.

Rationale Behind No Cancellation for HNIs

The rationale behind not allowing HNIs to withdraw their IPO application is to protect the IPO subscription process. High-net-worth individuals generally invest large sums in IPOs, so if they cancel their bids, it can significantly impact the overall IPO subscription numbers. 

Allowing HNI cancellation would make it difficult for the company and investment bankers to assess genuine IPO demand. It may also lead to speculation where investors put in large bids to gauge demand, with the option to withdraw later if demand seems weak.

To prevent such issues and bring stability to the IPO process, SEBI has mandated a no-cancellation rule for HNIs and QIBs.

IPO Application Modification for HNIs

While HNIs cannot withdraw or cancel their IPO bid, they have the option to modify the application to increase the bid quantity or price. However, HNIs cannot reduce the bid amount below the original application.

For example, if an HNI has applied for ₹5 lakh costs of shares in an IPO, they can modify and increase the application to, say, ₹10 lakh but cannot reduce the bid to, say, ₹2 lakh. Only upward modification in quantity/price is permitted.

This allows HNIs some flexibility to revise their bids while also ensuring firm and stable bids.

Why Retail Investors Allowed to Cancel IPO Bids?

Retail investors can cancel their IPO bids anytime while the issue is still open for bidding under applicable rules.

There are a few reasons for this:

1. Retail bid amounts are much smaller compared to HNIs. Hence, cancellation only significantly impacts overall subscription demand.

2. Retail investors need more investment experience compared to HNIs. Allowing cancellation gives them the flexibility to rework bids if needed.

3. To encourage more retail participation, rules need to be simpler without the entire bid amount being irrevocably blocked when a cancel option is not there.

Therefore, retail investors get some stretch on controlling their bids due to their small ticket sizes and also improve their overall participation.

IPO Application Cancellation Process for Retail Investors

Let us understand how a retail investor, eligible for IPO cancellation, can actually withdraw or delete the share application.

Online Cancellation Process 

Step 1) Log in to the online platform of the stockbroker through which the IPO application was done. 

Step 2) Under the IPO section, select the application to be cancelled

Step 3) Click on the "Cancel/Delete/Withdraw Bid/Application" and confirm the cancellation request

Step 4) The intermediary will submit a cancellation request to the stock exchange

Step 5) The Investor will receive a notification when cancellation is approved

Offline Cancellation Process

Step 1) Prepare a cancellation request letter with application details

Step 2) Submit a signed letter to the intermediary through which the IPO bid was placed

Step 3) Intermediary will cancel the application and inform the stock exchange

Important Points

• Cancellation can be done anytime when the IPO is open for bidding
• On the issue closing date, there could be a timing deadline by the afternoon to accept cancellation requests
• No cancellation charges are imposed on retail investors for cancelled IPO application
• In case funds were blocked already, they get unblocked on cancellation

Bidding Rules for Different Investor Categories

Along with IPO cancellation & withdrawal, it is also important for investors to know the bidding rules applicable for different categories:

Therefore;

• Retail investors have the flexibility to cancel & modify their IPO bids
• HNIs and QIBs cannot withdraw their IPO application once submitted
• HNIs & QIBs can only revise their bids upwards but not reduce the bid amount

Why IPO Bid Cannot Be Modified to Downsize?

Many investors may need clarification on why HNIs and QIBs cannot reduce their IPO application while modifying the bid. 

SEBI has put this rule to:

1. Ensure firm and stable bids from large investors

2. Avoid speculation, where investors put in large bids initially and later start reducing the bids if they perceive weak demand during bidding

Allowing only upward bid revision brings stability and commitment to the IPO process.

No Option for Post-Issue Modification 

Post issue period is after the IPO closes for bidding. Many investors wonder whether they can amend or cancel their IPO application after bidding closes.

It is important to note that as per regulations, no changes or cancellations are allowed during the post-issue period for any investor category.

The bids get frozen as per the final bid details submitted when the issue was open for bidding.

Conclusion

HNIs do not have the option to withdraw or delete their IPO application once submitted as per SEBI guidelines. Only retail investors can cancel their bids if required. However, HNIs can modify and revise their bids upwards, though they keep the bid amount below the original application.

Cancellation rules bring instability and commitment to IPO bidding, which is why HNIs cannot arbitrarily change their minds post-application. No changes are permitted in any IPO after the issue closes for bidding.