The Securities and Exchange Board of India (SEBI) is planning to introduce a regulated platform for pre-listing trading of Initial Public Offering (IPO) shares. This new mechanism will allow shares to be traded in a regulated manner during the three-day period between IPO allotment and listing.
This initiative will replace the existing unregulated grey market, which currently operates during this period. The grey market lacks transparency and exposes investors to significant risks.
The regulated platform will offer several key benefits. Firstly, it will provide greater transparency by offering a clear picture of market demand and potential valuation for the upcoming IPO. Secondly, it will improve liquidity by enabling trading before listing, reducing uncertainties and allowing investors to exit their positions if needed.
Further, the regulated platform will enhance investor security by shielding them from the unregulated activities prevalent in the grey market. Finally, it will empower investors with better information, enabling them to make more informed investment decisions.
This initiative is expected to have a significant impact on the Indian stock market. By creating a more transparent and competitive environment, it could attract both domestic and foreign investors, thereby boosting investor confidence and participation in IPOs.
However, analysts believe that SEBI should also address the grey market activity that begins as soon as a company announces its IPO plans. Measures to curb this early grey market activity would be crucial for protecting the interests of retail investors.