It is a practice in the IPO market wherein an intermediary or a market operator at the time of the issue of the IPO steps in to alter the price for realizing gains. Current scenario also is an evidence of this when this year a number of IPOs made laudable debut on the exchange.
Primarily in this course of action, what actually happens is that most of the shares of the IPO get cornered by market operators on account of frenzied buying with only very little float for the investors. And, involves manipulation of the IPO share price upon listing on the stock bourses. This is hence a malpractice which is put in check by the market watchdog, SEBI by putting penalty on the errant operators who have brought about manipulation in the price of the IPO share after its listing.
History of Shares cornering in IPO market and penalty implication
In a not so old instance, one of the financiers was charged with heavy penalty by the market regulator on account of cornering of IPO shares post listing. The incident related to cornering of not just one IPO share issue but 3 of them IDFC, Sasken Communications and Suzlon energy
The unlawful gains together with the penalty amount had to be paid. Also, a market ban of three months was proposed for the errant individual.
Cornerstone Investors or cornering the market in the IPO world
To increase interest in a particular IPO, companies sometime invite cornerstone investors, who are big investors, holding in on the shares of the IPO issue for quite sometime. The phenomena hence inculcates a vote of confidence and builds up the IPO shape. The practice is common in international IPO market as in HongKong.