The Securities and Exchange Board of India (Sebi) is planning trading of shares issued in an initial public offering (IPO) before they are listed, to check grey market activity.
This was disclosed by chairperson Madhabi Puri Buch on Tuesday.
Speaking at an event organised by the Association of Investment Bankers of India (AIBI), Buch said discussions were underway with the two stock exchanges to put in place a “when listed” platform where shares can be traded during the three days between the allotment and listing.
Pointing out that the grey market activity used to be called “kerb trading”, Buch indicated that the main purpose behind the proposed step is to move trading in such shares from the unregulated to the organised market.
India’s IPO market has been active over the past one year with issues from both the mainboard and the SME segments witnessing strong investor interest. This has also led to the unregulated or grey market remaining active. This is a market where shares are bought and sold before they are listed in the secondary market.
“We feel that if anyway investors want to do that, why not give them that opportunity in a proper regulated way?” Buch said.
“The idea is whatever is the grey market that is going on, pre-listing, we think that is not suitable. If you got an allotment and want to sell your right, sell it in the organised market,” she told the press later.
Arun Kejriwal, director KRIS, an investment firm, said that it is a positive thinking on part of the regulator to bring about a check and control on the unregulated market. ``It will be positive for the markets especially the SME issues which are increasing in volume and interest’’, he said.
Funds abuse
Buch said the capital markets regulator has found “egregious misuse” of funds raised through initial public offerings (IPOs) by certain companies and urged investment bankers to desist from helping such entities access the capital markets.
Buch said the i-bankers know exactly when they are bringing a “pump and dump” company to the market.
“You (i-bankers) should not bring a bad company to the market.”