The Securities and Exchange Board of India (Sebi) is working on a platform that will allow trading in shares issued during initial public offerings (IPOs) before they are formally listed. The move aims to curb grey market trading and ensure better price discovery.
Speaking at an event organised by the Association of Investment Bankers of India (AIBI), Sebi Chairperson Madhabi Puri Buch said the board is looking at allowing stock exchanges to launch the so-called ‘when-listed’ platform, enabling investors to trade their entitlements immediately upon allotment.
Currently, there is a three-day lag (T+3) between the closing of an IPO and the listing of shares, while the allotment is finalised within two days of the IPO closing. The IPO timeline was reduced to T+3 in December 2023 from T+6.
Market players said the new platform could be a precursor to further reducing the IPO timeline.
Puri Buch said that the intent is to curb trades happening in the unorganised market.
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“We feel that if any investors want to trade before listing, why not give them the opportunity in a properly regulated way? We are actively discussing this with both exchanges. Hopefully, this will serve as a bridge between pre-IPO and IPO,” said Puri Buch.
It remains to be seen how effectively the proposed platform can curb grey market activity, as much of it occurs before the launch of an IPO. Retail investors often look at grey market premiums for IPOs before deciding to invest. Most grey market activity is concentrated in select cities in Gujarat and Mumbai and is carried out by a select group of individuals.
At the AIBI event, the Sebi chairperson mentioned that the regulator has become more adept at tracking digital footprint related to market wrongdoing. She added that the probability of getting caught has increased with advancements in technology.
Puri Buch said that the regulator has observed ‘egregious misuse’ of funds by companies, including those raised through IPOs. These include related-party transactions, particularly with overseas subsidiaries, where funds are spent on purchases lacking ‘tangible evidence’.
She further called for the protection of whistle-blowers and better corporate governance.
Puri Buch mentioned that the market regulator is using artificial intelligence (AI) tools to speed up IPO processing times and improve the quality of assessment and examination of draft documents. The regulator is also working on ‘demystifying’ IPO documents by adopting a ‘fill-in-the-blanks’ approach for standard information, with details disclosed separately under an exceptional header.
Puri Buch also raised concerns about the objects of the issue when companies fail to provide clear details—adding that issuers can use the newly launched rights issue and preferential allotment mechanism, which helps raise funds in 26 days.
When asked whether Sebi will get involved in the pricing of IPOs, Puri Buch said that Sebi ensures sufficient information is accessible to investors for pricing assessment but does not play a role in determining IPO pricing.