In what could become one of the most consequential reforms in India’s capital markets in recent years, the Securities and Exchange Board of India (SEBI) has signalled its intent to regulate trading in unlisted shares through a dedicated pre-IPO trading platform. The initiative, announced by SEBI Chairman Tuhin Kanta Pandey at the FICCI Capital Market Summit in Mumbai, aims to bring transparency, efficiency, and tax compliance to a market that has thrived in the shadows for decades.
If implemented, the regulated pre-IPO platform could fundamentally alter the dynamics of how investors access companies before they list, while delivering a potential blow to the informal grey market, which currently dominates pre-IPO transactions.
The Grey Market: A Parallel Ecosystem
For years, the grey market has played a peculiar but important role in India’s IPO landscape. Investors eager to speculate on unlisted companies — from blue-chip names like the National Stock Exchange and Tata Capital to cultural icons like Chennai Super Kings — have flocked to this unofficial network of brokers and traders.
These trades, often carried out through demat accounts and intermediaries, involve shares held by early employees, angel investors, or even promoters. Despite being legal yet unregulated, the grey market has operated with minimal transparency.
Its biggest function: price discovery. The grey market premium (GMP) — the difference between the unofficial trading price and the IPO offer price — has long served as an informal predictor of listing performance. But the opacity of the system raises significant concerns. Pricing is often speculative, disclosures are absent, and the government loses out on tax revenue.
SEBI’s Proposal: From Shadow to Spotlight
Against this backdrop, SEBI’s pre-IPO market regulation seeks to institutionalise grey market trading.
“Think of an initiative, on a pilot basis for a regulated venue where pre-IPO companies can choose to trade, subject to certain disclosures,” Pandey told the audience.
The idea is simple but ambitious: instead of leaving trading to informal channels, create a regulated digital platform, operated under the oversight of exchanges and regulators, where companies approaching an IPO can voluntarily allow their shares to trade.
This platform could serve multiple purposes:
- For investors: clearer information, better transparency, and reduced risk.
- For companies: smoother fundraising, improved investor onboarding, and elimination of friction points.
- For the government: higher tax compliance and a cleaner market ecosystem.
Whole-time SEBI member Kamlesh Varshney put it bluntly: “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.”
Timing: Riding the IPO Boom
SEBI’s pre-IPO market regulation is not happening in isolation. India’s primary market is on a tear. In FY25 alone, INR 4.3 lakh crore was raised, while the pipeline for FY26 already stands at INR 1.4 lakh crore.
Highest subscribed IPOs such as Highway Infrastructure (oversubscribed 300.6x) and Indo Farm (229.68x) highlight the deep investor appetite. At the same time, Q1 2025 saw Indian companies raise USD 2.8 billion despite global volatility — underscoring India’s rising prominence as one of the world’s top IPO markets.
In this context, a regulated pre-IPO platform could serve as the missing link between private capital and public markets.
Regulated Pre-IPO Platform: The Mechanics
While details on SEBI’s pre-IPO market regulation are still at a conceptual stage, early signals suggest:
- A regulated pre-IPO platform may allow trading during the three-day window between IPO allotment and listing, replacing grey market deals that typically occur in this period.
- Participation could be restricted to sophisticated investors, much like existing Alternative Investment Funds (AIFs).
- Disclosures would be mandatory, ensuring a minimum level of transparency.
- Brokers and intermediaries would need to register with SEBI, closing loopholes that exist in today’s grey trades.
Pandey stressed that the idea remains “in principle” and SEBI will consult with the Ministry of Corporate Affairs, stock exchanges, and depositories before moving forward.
SEBI’s Broader Reform Agenda
The regulated pre-IPO platform is just one element of Pandey’s sweeping reform vision. In Mumbai, he highlighted multiple initiatives aimed at strengthening India’s capital markets:
- Shorter IPO timelines and digital processes to cut costs and delays.
- Blocking of funds and direct payouts to protect investors.
- Promotion of new asset classes: AIFs, REITs, InvITs, PMS, and SIPs now form a significant part of India’s capital market landscape.
- AI in financial markets, for risk monitoring, fraud detection, and financial inclusion — though Pandey cautioned against overreliance: “AI should be thought of as an assist, not a substitute.”
- Potential longer-tenure equity derivatives, with SEBI set to float a consultation paper. This, however, sparked a sharp selloff in market intermediaries such as BSE and Angel One.
What It Means for Investors
For retail investors, the impact will be limited in the short term. Most pre-IPO opportunities will be restricted to HNI and institutions. But better transparency before IPOs will ultimately benefit retail investors by having fairer listing prices and reducing speculation.
For companies, a regulated platform will reduce the cost of capital, speed up fundraising and increase investor trust.
For the government, it’s simple: more tax collections and a cleaner financial system.
Conclusion
India’s capital markets have undergone a sea change in the last two decades — from dematerialisation to faster settlements, from SIP-driven retail inflows to REITs and InvITs. A regulated pre-IPO trading platform fits into this series of reforms.
The road ahead will be tough; we need to balance innovation with caution and transparency with flexibility. But if we succeed, this will reshape India’s market structure and make it more robust and global.
As Pandey said, “We have growth momentum with us. It’s time to convert it into a flywheel.”
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