Curbing Grey Market Activity: SEBI’s Proposed "When-Listed" Trading Period
The Securities and Exchange Board of India (SEBI) is taking significant steps to enhance the integrity of the Indian capital markets. One of the most notable proposals is the introduction of a “when-listed” trading period for securities, which would occur between the closure of an initial public offering (IPO) and their official listing on exchanges. This initiative aims to curb grey market activities that often thrive in the absence of regulation during this transitional phase.
Understanding the Current Landscape
Currently, there exists a three-day gap—known as T+3—between the closure of an IPO and its listing. During this period, informal trading, often referred to as “curb trading,” flourishes. Investors engage in unregulated transactions, which can lead to price manipulation and a lack of transparency. SEBI Chairperson Madhabi Puri Buch emphasized the need for a structured trading environment, stating, “If investors wish to engage in such trades, they should have the opportunity to do so in a regulated manner.” This statement reflects a commitment to fostering a more transparent and ethical trading ecosystem.
The IPO Boom and Its Implications
India is currently experiencing an IPO boom, with 91 large firms going public in 2024 and raising a staggering ₹1.6 trillion, according to Prime Database. This surge in IPO activity underscores the importance of establishing robust regulatory frameworks to protect investors and maintain market integrity. Buch’s remarks signal a broader ambition for India’s capital markets, moving beyond mere legal compliance to fostering ethical governance.
Building Investor Trust
At the heart of SEBI’s agenda is the imperative to build and maintain investor trust. Buch highlighted that transparency and ethical practices must begin at the IPO stage to mitigate systemic risks. With an increase in small offerings—some as low as ₹50-100 crore—there is a heightened risk of companies engaging in “pump and dump” schemes. Such practices can severely undermine investor confidence and market stability.
Market participants must remain vigilant to ensure that entities attempting to manipulate stock prices are kept at bay. Buch’s emphasis on ethical governance reflects a growing recognition that investor trust is paramount for the sustainability of capital markets.
Enhancing Transparency in Related Party Transactions
In addition to the proposed trading period, SEBI is also working to increase transparency around Related Party Transactions (RPTs). Collaborating with proxy advisory firms, two leading organizations are set to launch a comprehensive RPT database. This initiative aims to provide valuable insights into corporate governance, enabling analysts and investors to make informed decisions. Buch expressed her satisfaction with this collaboration, noting that it was achieved at no cost, further emphasizing the commitment to transparency.
The Role of Technology and Whistleblowers
Technological advancements have transformed the landscape of regulatory oversight. Buch noted that every action leaves a digital footprint, making it increasingly difficult for wrongdoing to go unnoticed. Regulators are now equipped with sophisticated tools to track these digital traces, reducing the likelihood of unethical practices.
Moreover, the influence of whistleblowers has grown significantly. In today’s digital age, a single whistleblower can generate momentum that transcends traditional media channels. Buch highlighted the importance of this phenomenon in exposing unethical practices, reinforcing the idea that accountability is crucial for maintaining market integrity.
A New Generation of Entrepreneurs
Buch also acknowledged the shift in mindset among younger entrepreneurs, who are increasingly focused on ethical wealth creation. This emerging theme suggests that the new generation is not only interested in accumulating wealth but also in doing so through transparent and well-governed means. This cultural shift is essential for fostering a sustainable and ethical business environment.
Conclusion: The Future of India’s Capital Markets
As SEBI moves forward with its proposals, the overarching message is clear: the growth and sustainability of India’s capital markets hinge on investor trust. Buch’s cautionary note serves as a reminder that any actions that erode this trust could jeopardize the entire system. By introducing a regulated trading period and enhancing transparency, SEBI is taking proactive steps to ensure that the Indian capital markets remain robust, ethical, and trustworthy for all participants.