SEBI is considering to allow trading in shares ahead of the listing to curb grey market activity. Currently, there is a 3 -day gap between the closure of the issue and the listing in the stock exchange. Through the trading of these 'when-listed' securities investors will get to trade stocks after a company closes its IPO but before they are officially listed in the exchange. Madhabi Puri Buch, Chairperson, SEBI said, “Today, we are at t+3 from closure of the issue to listing but even during those 3 days there is a lot of grey market activity which we call ‘curb trading’, so we feel if investors want to do that then why not give them that opportunity in a proper regulated way so trading of ‘when listed securities’ is something we are actively looking at with both the exchanges.”
While speaking at Association of Investment Bankers of India (AIBI) Buch stated that SEBI plans to introduce a regulated platform for these transactions, allowing investors to trade securely within a structured framework, reducing reliance on informal markets and enhancing transparency.
This comes at a time where despite SEBI's tightening of rules for the SME IPO market, the demand garnered by SME IPOs continues to remain unmatched and many companies have ended up having subscriptions over 1,000 times.
On speaking to Apurva Sheth, Head of Market Perspectives and Research, SAMCO Securities on when listed securities trading proposal he said, “The year 2024 has been phenomenal in the history of Indian capital markets with 94 mainboard issuances in the primary market. They raised Rs 180,650 crores which was the highest ever amount raised. Another number which would have probably crossed even the amount raised in the turnover in grey market. Market regulator has come up with a discussion paper on introducing the concept of ‘when-listed’ which will allow shares to be traded in SEBI between the close of IPO and its listing. This is a good move by the regulator as it will limit kerb trading or unofficial trading in the grey market. However, one must note that a majority of the grey market activity happens before the IPO opens. A lot of investors apply to the IPO’s only after looking at the grey market premiums. Higher premiums in grey market normally leads to higher subscriptions in IPO’s. Thus, we must also find ways of curbing grey market activity before the IPO opens in order to safeguard retail investors’ interest.” On talking about pricing of the IPOs in the market Buch said that as regulators they cannot control the pricing of the issue but they can make sure that there is enough information for the investors to make an informed decision.
She also credited the use of AI in transforming the quality of examination of documents filed by companies which has drastically reduced the time of the approval processes. She said, “AI has helped in demystifying the IPO documents, the standard requirements in documents are put together and read by the AI and other things which are exceptions are noted separately by the officer. This reduces the time for the processing of the documents. Moreover, the AI has scan the whole social media and find out about any news related to the company, promoters or compliance in the past. It then uses that information to classify that and say is there anything out of this which is negative and therefore a red flag and this is reported to the officer to check whether this has been disclosed in the document or not.” On the plans of proxy advisors to launch the Related Party Transactions (RPT) portal, the SEBI chief said the two major proxy advisory firms are on the verge of launching the facility soon. This will be a valuable resource for stakeholders looking to judge the governance of a company and will be a step towards democratisation of information on RPTs, she said.
Lastly, she said that it is the responsibility of the merchant bankers to not bring pump and dump companies to the markets. “It's not about being caught doing something wrong and fixing it, that's like getting a disease and going to a doctor to get a surgery to repair it, but rather to focus on fitness and well-being and taking preventative measures, both in terms of the spirit of the law and the letter of the law. That's the future that at SEBI, we would like to see going forward," Buch said.