The Securities and Exchange Board of India (Sebi) is likely to crack down on certain malpractices observed in initial public offerings (IPO) that include the so-called “mule accounts” that help inflate the number of subscriptions to an issue.

Speaking at the annual convention of the Association of Investment Bankers of India (AIBI), Sebi chairperson Madhabi Puri Buch disclosed the capital markets regulator has found three merchant bankers frequently indulging in inflating subscriptions during share sales, and that action would be taken against them.

Observing that Sebi is not against risk-taking by market participants, Buch said the regulator is not pleased about some of the misconduct.

“`What we are unhappy about is some of the malpractices that we have seen. You could expect some measures from Sebi to come in that direction.’’

Buch said Sebi also has data and evidence on mule accounts.

According to its website, a mule account is a trading account in the name of a person maintained with a stock broker, or a dematerialised account or bank account linked with the trading account.

But the account is effectively controlled by another person, whether or not the consideration for transactions in the account is paid by such other person.

“You apply in a manner that your application gets rejected. So you put in multiple applications with multiple banks knowing fully well that they will get rejected. So the whole purpose of applying is to inflate the number. These are the kinds of practices which we are observing,’’ Buch added.

``We are also seeing practices where there is a pattern of which kind of merchant bankers tend to be ... frequent names occurring in such malpractices. Therefore, in the interest of the investors, we will be required to both review policy as well as (start) enforcement actions,” she said.

Her comments come amid a very active IPO market recently with certain companies witnessing very high subscription numbers and a strong listing.

The AIBI said it will bring key initiatives that are designed to create a robust investment culture, raising investor awareness and promoting financial literacy.