Sebi Eyes Framework to Bring Unlisted Share Trades Under Its Watch

The Securities and Exchange Board of India (Sebi) is exploring ways to regulate the country’s sprawling grey market, where stocks of companies such as NSE, Chennai Super Kings, and Cochin International Airport trade unofficially, often at steep premiums.

The proposal, still at an early stage, would create a regulated platform for pre-IPO companies to trade their shares, giving investors a clearer picture of pricing and helping the government collect more in taxes. “Pre-listing information is often insufficient for investors to make an investment decision,” The Economic Times reported Sebi chairman Tuhin Kanta Pandey saying at an industry event. “Can we come up with a pilot initiative for a regulated venue where pre-IPO companies can choose to trade, subject to certain disclosures”

Adding on to Sebi’s take on unlisted shares, Kamlesh Varshney, Sebi’s whole-time member, said, “There is a market known as the grey market. Can this be regulated within the confines of law? If this market is regulated, prior to an IPO, it can help in price discovery. The government will also receive its fair share of revenue through taxes. This would benefit everyone involved.”

India has been one of the busiest IPO markets this year, raking in around $2.8 billion in the first quarter despite global headwinds. But behind the boom, the unregulated unlisted market has been growing louder. Traditionally the hunting ground of wealthy investors, the trade in unlisted shares is now being fuelled by retail investors, aided by digital platforms that make it almost as easy as buying a listed stock.

For many, the chase is to buy into big names such as OYO or NSE even prior to their public offers, often at what feels like a bargain. Yet the reality has been sobering. A string of recent IPOs have been priced much below their unlisted highs, leaving investors staring at losses even before trading even began. NSDL’s IPO at ₹800 a share was far below the ₹1,250 it had touched in the unlisted market. HDB Financial’s listing at ₹740 came after its unlisted shares had been changing hands at nearly double that.

“Unlisted shares were once the preserve of high-net-worth individuals,” analysts at InCred Money noted. “That picture has changed significantly. Digital platforms have made investing in unlisted shares almost as straightforward as buying listed ones, and retail participation has grown sharply.”

To that effect, for Sebi, regulating this parallel market is as much about investor protection as it is about better price discovery and revenue collection.