SEBI’s New Trading Concept for IPOs
The Securities and Exchange Board of India (SEBI) is introducing a new trading concept aimed at enhancing the trading experience for investors in initial public offerings (IPOs). This initiative comes in response to the growing concerns surrounding the unofficial trading of shares before they are officially listed. Currently, shares of companies that have completed their IPO bidding process are traded in the grey market, which can lead to price manipulation and uncertainty for investors. SEBI’s proposed “when listed” concept seeks to provide a regulated platform for trading these shares, ensuring that investors have a fair opportunity to sell their allotments.
Addressing the Grey Market Issue
The grey market for IPO shares has been a persistent issue in the Indian financial landscape. Investors often engage in unofficial trading, which can last for weeks before the official listing. This practice creates a volatile environment where the grey market premium (GMP) can significantly influence the listing price of shares. SEBI Chairperson Madhabi Puri Buch emphasized the need to eliminate this black market, stating that investors who receive allotments in an IPO should have the right to sell their shares in a regulated manner.
By allowing trading in a controlled environment, SEBI aims to protect investors from the risks associated with the grey market. The proposed system would enable investors to trade their shares once they have been allotted, thus providing them with a legitimate avenue to realize gains or mitigate losses. This change is expected to foster greater transparency and stability in the IPO market, ultimately benefiting both investors and companies seeking to raise capital.
Learning from the Government Bond Market
SEBI’s proposed “when listed” concept draws inspiration from the government bond market, where a similar mechanism exists. In this market, bonds can be traded in a “when issued” segment before they are officially sold. This allows investors to engage in trading for a few days after a government notification is issued but before the bonds are available for public sale.
By adopting a similar approach for IPO shares, SEBI aims to create a structured and regulated trading environment. This would not only enhance investor confidence but also streamline the process for companies looking to go public. The introduction of this concept could lead to a more efficient market, where investors can make informed decisions based on real-time trading data rather than relying on unofficial channels.
Preparing for a Surge in IPOs
The Indian IPO market is poised for significant growth, with over 91 large companies expected to list in 2024, raising a record ₹1.6 lakh crore. Mahavir Lunawat, the president of the Association of Investment Bankers of India (AIBI), indicated that around 1,000 companies could pursue IPOs in the next two years. In light of this anticipated surge, SEBI is taking proactive measures to ensure it can handle the influx of applications.
To streamline the IPO process, SEBI is developing a standardized template for submissions. This template will simplify the application process for companies and merchant bankers, allowing for quicker approvals. The use of artificial intelligence tools to process offer documents will further enhance efficiency. By preparing for this wave of IPOs, SEBI aims to create a robust regulatory framework that supports both investors and companies in their capital-raising efforts.
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