Sebi looks to allow trading in IPO shares ahead of listing to curb grey market activity: Buch

To curb grey market activity, the Securities and Exchange Board of India (Sebi) is considering introducing a “when-listed” trading period for securities between the closure of an initial public offering (IPO) and their formal listing on exchanges.

The move, Sebi chairperson Madhabi Puri Buch explained, aims to bring transparency and structure to a phase often dominated by informal and unregulated trading. “Sebi believes that if investors wish to engage in such trades, they should have the opportunity to do so in a regulated manner,” Buch said, speaking at an Association of Investment Bankers of India (AIBI) event in Mumbai.

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Currently, a three-day gap—T+3—exists between the closure of an IPO and its listing, during which “curb trading” thrives in informal markets. “We are actively considering a ‘when-listing’ trading period,” Buch noted.

The comments come amid an IPO boom in India. In 2024, 91 large firms went public, raising a record ₹1.6 trillion, according to data from analytics firm Prime Database.

Her remarks signal a broader ambition for India’s capital markets: shifting from mere legal compliance to fostering ethical governance. “We’ve spent years ensuring compliance with the letter of the law. Now, we’ve reached a point where the ecosystem has matured, deploying resources, technology, and people to ensure this compliance,” she said.

Building investor trust

Investor trust remains at the heart of Sebi’s agenda. Buch emphasized that transparency and ethical practices must begin at the IPO stage to mitigate systemic risks. With a rise in small offerings—some as low as ₹50-100 crore—she warned of the dangers posed by companies attempting “pump and dump” schemes.

Market participants are aware when a company is being brought to market to manipulate stock prices and it is their responsibility is to ensure such entities are kept out, she added.

Sebi is also working to increase transparency around Related Party Transactions (RPTs) with help from proxy advisory firms. Buch revealed that two leading firms are launching a detailed RPT database to provide comprehensive information on such transactions across companies. “This will be a valuable resource for analysts, investors, and anyone examining corporate governance. I am pleased they collaborated and did it at no cost,” she said.

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Buch also praised India’s younger entrepreneurs for their focus on ethical wealth creation, noting a shift toward transparent and well-governed growth.

“It seems to be an emerging theme that the younger generation is now saying that they already have a lot of wealth. Second, that they see that it is possible to grow that wealth in a kosher, well-governed way,” she observed.

She added that technological advancements have made it increasingly difficult to conceal wrongdoing. “Every action now leaves a digital footprint somewhere,” she remarked. “The regulators have become smarter, they have more technology available to find these digital footprints. It is no longer worthwhile for people to take that chance.”

Buch also highlighted the growing influence of whistleblowers, emphasizing their role in exposing unethical practices. “Through social media, a single whistleblower can create a momentum that travels far beyond traditional media,” she said.

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Buch ended with a stark reminder: the growth and sustainability of India’s capital markets hinge on investor trust. “If we do anything that erodes this trust, the entire system can collapse,” she cautioned.