Quick Overview
The Securities and Exchange Board of India (Sebi) is considering a new initiative to bridge the gap between the closure of an initial public offering (IPO) and the listing of shares on stock exchanges. This initiative aims to introduce ‘when-listed’ securities trading, which would allow shares to be traded during the current three-day period where unregulated curb trading occurs. Sebi chairperson Madhabi Puri Buch discussed these plans at the AIBI Annual Convention 2024-25, emphasizing the need for a more transparent and structured trading environment.
Key Points
The initiative aims to reduce reliance on informal markets and curb trading by providing a secure trading framework.
Sebi is committed to improving transparency in IPO disclosures, ensuring investors have adequate information to assess IPO pricing.
Two working groups are reviewing disclosure requirements for companies that have yet to achieve profitability.
Sebi is also prioritizing transparency in corporate governance practices to empower stakeholders.
Introduction of ‘When-Listed’ Securities
Currently, there is a three-day gap between when an IPO closes and when shares are officially listed on the exchanges. During this period, unregulated trading, known as curb trading, often takes place, which can lead to market manipulation and misinformation. Sebi’s proposal for ‘when-listed’ securities aims to create a regulated trading platform that allows for secure transactions during this gap, thereby enhancing market integrity.
Addressing Curb Trading
Madhabi Puri Buch highlighted the need to reduce informal trading practices, which can undermine investor confidence. By establishing a structured framework for trading, Sebi hopes to provide a safer environment for investors while ensuring that trading activities are conducted transparently and legally.
Enhancing IPO Transparency
Buch emphasized that while Sebi does not set IPO prices, it plays a crucial role in ensuring that investors have sufficient information to evaluate the fairness of these prices. Sebi’s focus is on the quality of information provided in IPO documents, especially regarding pricing, which is essential for informed investment decisions.
Guidelines for Non-Profitable Companies
Sebi is aware of the challenges faced by companies that have not yet turned a profit. To address this, two working groups are currently reviewing the guidelines for reporting key performance indicators (KPIs). The goal is to strike a balance between providing comprehensive data and avoiding information overload, ensuring that investors receive relevant and digestible information.
Focus on Corporate Governance
In addition to improving IPO disclosures, Sebi is also prioritizing transparency in corporate governance practices. This includes oversight of resolutions passed at annual general meetings (AGMs) and the approvals by audit committees. By enhancing governance transparency, Sebi aims to empower stakeholders and promote informed decision-making.
Important Details & Evidence
In 2024, India’s IPO market saw remarkable growth, with 91 large companies going public and raising a record Rs 1.6 trillion (approximately $18.5 billion). This surge highlights the importance of Sebi’s initiatives to maintain and enhance investor trust in the market.
Final Takeaways
Sebi’s proposed changes to the IPO process, particularly the introduction of ‘when-listed’ securities trading, reflect a proactive approach to improving market transparency and integrity. By addressing curb trading, enhancing IPO disclosures, and focusing on corporate governance, Sebi aims to foster a more secure and informed investment environment. These initiatives are crucial for maintaining investor confidence and supporting the ongoing growth of India’s capital markets.
