Sebi’s Vision for a Regulated Pre-IPO Trading Platform
On Thursday, Tuhin Kanta Pandey, the chief of the Securities and Exchange Board of India (Sebi), announced a significant initiative aimed at enhancing the transparency and safety of pre-initial public offering (IPO) trading. Speaking at the FICCI Capital Market Conference 2025, Pandey revealed that Sebi is exploring the creation of a regulated platform for pre-IPO trading. This move is designed to replace the unregulated grey market, which has gained traction among investors despite its inherent risks.
Addressing the Information Gap
One of the primary concerns highlighted by Pandey is the inadequacy of pre-listing information available to investors. The current system leaves a three-day gap between the closure of subscription and the actual listing of shares, during which the grey market operates. This gap often leads to uninformed trading decisions, as investors lack sufficient data to make educated choices. Pandey emphasized that the proposed regulated venue would allow pre-IPO companies to trade under specific disclosure requirements, thereby fostering a more informed trading environment.
Curbing Unregulated Activities
The unlisted space has become increasingly popular, attracting many investors who are often unaware of the significant risks involved. By introducing a regulated platform, Sebi aims to bring order to this segment and curb the growing activities in the unregulated grey market. The initiative is timely, especially considering that 48 mainboard firms have gone public in 2025 alone, with August witnessing an impressive 11 IPO launches.
Challenges Ahead
While the proposal is promising, Pandey acknowledged potential challenges, including unnecessary processes, disclosure requirements, and onboarding issues. He clarified that discussions with depositories regarding the platform are still in the preliminary stages. The regulator’s intent is to balance innovation with investor protection, ensuring that any new system does not inadvertently complicate the trading process.
Enhancing Derivative Contracts
In addition to the pre-IPO trading platform, Pandey discussed Sebi’s plans to extend the tenure and maturity of equity derivative contracts. This initiative follows a study revealing that a staggering 91% of individual futures and options (F&O) traders incurred losses in FY25, collectively amounting to over ₹1 lakh crore.
To address this issue, Sebi plans to consult with stakeholders to improve the maturity of derivative products, making them more suitable for hedging and long-term investing. While cash market volumes have doubled in the past three years, there is a pressing need to strengthen the derivatives market to enhance its quality and balance.
Focus on Transparency and Innovation
Pandey also stressed the importance of transparency in disclosures, investor onboarding, and digital platforms. He emphasized that innovation in the capital market should aim to reduce friction and compliance costs for all parties involved while effectively managing risks. Drawing on past innovations like alternative investment funds (AIFs) and real estate investment trusts (REITs), he underscored the need for a balanced approach to regulation and market demand.
The Role of Artificial Intelligence
Artificial intelligence (AI) was another focal point of Pandey’s address. He noted that AI has the potential to transform financial markets by enhancing customer engagement, risk assessment, and fraud detection. However, he cautioned that the adoption of AI must be approached carefully, as it could exacerbate concerns related to data protection and cybersecurity. Sebi’s proposed guiding principles for AI emphasize a tiered approach, robust data controls, and clear accountability.
Combating Fraud and Misinformation
Sebi is also committed to protecting investors from online fraud. Pandey revealed that the regulator is collaborating with social media platforms to eliminate misleading financial content before it can spread. He warned against the proliferation of fake apps, cloned websites, and unregistered entities that mislead investors. To further bolster investor awareness, Sebi plans to intensify campaigns highlighting these risks.
A Call for Industry Responsibility
In closing, Pandey called on the financial industry to ensure "clean edges" by avoiding unregulated advice and providing clear, timely disclosures. He emphasized the necessity for mandatory Sebi registration details to be visible on all financial apps, websites, and social media platforms. This collective effort aims to create a safer and more transparent investment landscape for all stakeholders.
Conclusion
The initiatives announced by Sebi’s chief signal a proactive approach to enhancing the Indian capital market’s integrity and transparency. By exploring a regulated pre-IPO trading platform and addressing the challenges in the derivatives market, Sebi is taking significant steps to protect investors while fostering innovation. As these plans unfold, the focus remains on creating a balanced environment that prioritizes investor safety and market efficiency.