Sebi mulls platform for pvt equity, VC securities

It could be a non-exchange trading venue for privately held securities

To boost investment, the Securities and Exchange Board of India (Sebi) is planning to set up an alternative trading platform for private equity (PE) and venture capital (VC) investors, say those privy to the matter. The platform, a non-exchange trading venue, will facilitate various securities changing hands, largely done privately.

The platform will be used to match buy and sell orders for securities transactions.

Sebi is said to be taking cues from advanced economies such as the US and key markets in Europe, which have successfully experimented with similar trading mechanisms.

OUTSIDE THE BOURSE

• The platform will be on the lines of the US’s Alternate Trading System and Europe’s Multilateral Trading Facility
• The platform will be meant only for institutional investors
• Industry players believe the introduction of the concept of Alternate Trading Platform will lower trading cost and also provide a much-needed mechanism for dealing in privately held securities
• Experts say such platforms will need amendments to the Securities Contracts and (Regulation) Act
• Currently, there is no platform to carry out trade in such securities; it is carried out on an over-the-counter basis

As these platforms for trading publicly-held securities offer limited transparency on order size and pricing, these are also referred to as 'dark pools'. Sebi plans to restrict the proposed platform to privately-held securities. "The platform is being envisaged for non-retail trading in privately-issued securities, including equity, debt and securitised debt. The move is aimed at giving a fillip to investment by PEs and VCs," said a source.

Currently, there is no platform to carry out trade in such securities; it is carried out on an over-the-counter basis.

Many believe an alternative trading platform will reduce trading costs.

Experts say such off-exchange platforms will need amendments to the Securities Contracts and (Regulation) Act, or SCRA. Currently, the SCRA allows trading in securities contracts only through an exchange platform.

Listing privately-held securities on an exchange platform is perceived as more tedious by PEs and VCs, considered systemically important, as they provide initial capital for start-ups and small & medium enterprises.

"Currently, the only options available for exits from privately-placed securities is either listing or selling to another interested private party. There is enough scope in the market to develop platforms that will give additional exit opportunities to large institutional players," said Kalpana Jain, senior director, Deloitte.

An alternative trading platform will be second measure aimed at providing easy trading and exit opportunities to investors in this segment.

Recently, Sebi had allowed PEs and VCs to offload holdings through the offer-for-sale route, earlier restricted to promoters.

Lack of exit opportunities has been one of biggest challenges faced by PEs and VCs in India. Many such global investors are wary of investing here on concerns surrounding exits, as the Indian primary market has seen a prolonged lull.