ICICI Securities had to cut its IPO size to Rs3,520 crore from the original target of Rs4,017 crore because of poor investor interest. Of this, a large chunk was bought by ICICI MF.

“Queries have been sent to exchanges, merchant bankers and Registrar and Transfer Agents. This is based on the concern that a related party, ICICI MF, has taken a massive exposure to ICICI Securities during its IPO,” said one of the two people cited above. Both declined to be identified.

The queries were sent last week, said the second person, adding that “exchanges are compiling the data and would be responding to the regulator’s queries this week”.

Cogencis first reported on 13 April that ICICI Prudential was the largest buyer in the ICICI Securities share sale.

ICICI Securities and a spokesperson for BSE declined to comment. Emails sent to Sebi and NSE were not answered till press time.

To be sure, ICICI MF’s investment in ICICI Securities is in line with Sebi regulations and the asset management company’s investment mandate. However, Sebi can initiate an investigation to ascertain if the fund house is in violation of the model code of conduct prescribed in Sebi’s norms for mutual funds.

In an emailed response, an ICICI MF spokesperson said, “All our investments are carried out in line with the regulatory guidelines and established processes. The quantum of our investments that has been made in the IPO is in line with investments made in other primary issues where we have invested.”

ICICI MF is ICICI Securities’ largest public shareholder with 3.82% stake, according to the company’s shareholding pattern on BSE. Other major public shareholders are HDFC Mutual Fund at 1.2% and Reliance Mutual Fund at 1.04%.

Securities, the brokerage and investment banking arm of ICICI Bank. The IPO had opene High valuations were seen as the reason for investors’ indifference to ICICId amid allegations of impropriety against the bank’s CEO Chanda Kochhar.

On the day of listing, the stock crashed 14.4% from the issue price of 520 to close at Rs445.05. On Monday, it closed at Rs423.35 on the BSE, 18.6% below the issue price.

“ICICI MF has put in more than Rs600 crore in the IPO. More than half of QIB (qualified institutional buyer) quota was subscribed by the AMC,” the second person said.

“If ICICI AMC knew that the issue was undersubscribed, then they are wholly responsible for the decision. But in case the bankers did not go back and ask ICICI AMC whether they want to reduce their bid amount given the issue is undersubscribed, then the bankers need to answer why they did not keep the investors informed,” said Amit Tandon, managing director at proxy advisory firm Institutional Investor Advisory Services.

“Ethically, it can be questioned that this seems like a bailout of a sister company. However, the fund house can justify this by saying that they have a long-term view on the company,” said J.N. Gupta, co-founder and managing director of Stakeholders Empowerment Services, a proxy advisory firm.

According to a person familiar with the development, ICICI MF’s investment in ICICI Securities is based on a long-term view on the company. “Digital space is attractive and by that logic, ICICI Securities and ICICI Direct. ICICI Securities also looks good in terms of long-term investment,” this person said on condition of anonymity.