Sebi mandates top personnel to hold shares in Demat form ahead of IPO — Key takeaways from regulator's board meeting

India's capital markets regulator, the Securities and Exchange Board of India (SEBI), approved a series of proposals on Wednesday, 18 June 2025, to ease and clarify market regulations for investors and corporates. 

Here are the key takeaways from Sebi's meeting

1. Demat mandate: Sebi approved the mandate that select shareholders, including directors and key managerial personnel, hold their shares in the company in Demat form before filing for an initial public offering (IPO).

Earlier, Sebi proposed this new mandate to reduce the inefficiencies and risks associated with physical share certificates, including loss, theft, forgery, and delays in transfer and settlement.

“In spite of several regulatory mandates and facilitation mechanisms being in place, there remains a significant volume of holding of physical shares even among critical pre-IPO shareholders, such as directors, Key Managerial Personnel (KMPs), senior management, selling shareholders, and even Qualified Institutional Buyers (QIBs). This leaves a regulatory gap that allows a good volume of physical shares to continue existing post-listing,” reported Mint earlier, citing the Sebi consultation paper.

Before the new mandate, Sebi rules required specific securities owned by the promoters to be in dematerialised form before the company filed its draft papers for an IPO.

2. ESOPs for founders: Sebi allowed startup founders to retain Employee Stock Ownership Plan (ESOPs) even after the company is listed post an IPO. Before this new update, founders were converted into promoters, hence making them ineligible for the ESOPs.

Sebi aims to recognise the role of founders through this step, and also directed that in order to avoid a misuse of this grant, there will be a one-year cooling period between ESOP grants and IPO draft papers filing. 

3. Delisting of PSUs: Sebi also approved that PSUs can now voluntarily delist themselves in line with the Indian government's disinvestment agenda. This grants the companies the ease in operations as compared to earlier.

According to another Mint report, the government has been planning strategic exits as part of its broader economic agenda; hence, the new delisting norms will improve the efficiency of the disinvestment process of listed PSU firms.

4. AIF co-investments: The markets regulator also approved a new mandate which offers Alternative Investment Funds (AIFs) co-investment opportunities to access high-quality deals.

The new mandate will give AIF investors an opportunity to make additional investments in the same unlisted companies where the AIF has invested.

5. Simplified framework for FPIs: Sebi, on 18 June 2025, also simplified the framework for foreign portfolio investors (FPIs) who are investing in Indian bonds. This move is likely to make India more attractive to long-term global capital due to the lower-risk nature of sovereign debt and the easing of registration and compliance regulations.

According to a separate Mint report, Sebi aims to make Indian markets more accessible to low-risk global investors.