KuberGrow Team The Securities and Exchange Board of India (SEBI) is working on a new “when-listed” mechanism to bring order and transparency to pre-IPO trading. This move aims to regulate the buying and selling of IPO shares during the short window between their allotment and official listing.
SEBI Chairperson Madhabi Puri Buch recently shared plans to create a formal platform for pre-IPO trading. Speaking on January 21, she said, “If investors are already engaging in such trades, why not give them a proper, regulated way to do it?” This system would provide a structured and legal way to trade IPO shares before they hit the stock market, replacing the current unregulated and chaotic trading practices.
Pre-IPO trading is different from the grey market, although both operate outside formal regulation. The grey market involves informal cash-based trading, while pre-IPO trading deals with shares that are about to be listed. Often, traders need an introduction to join these exclusive markets. Brokers connect traders with sellers, including company employees or investors holding early allotments like ESOPs.
Investments can range from as low as ₹1,000 to ₹10 lakh, and brokerage fees are high—1-2% of the investment compared to just 0.01-0.02% in regulated markets. As the IPO listing date approaches, activity in the pre-IPO market increases. Sellers aim to offload shares at a premium above the IPO’s price band, hoping to profit from the difference.
Regulating pre-IPO trading won’t be easy. SEBI’s current rules only cover listed securities, so expanding oversight to pre-IPO trades will require significant changes. Some traders, especially those handling large amounts, may resist switching to a regulated system. Many prefer the anonymity and flexibility of the current cash-based market.
India is seeing a surge in IPO activity, with over 1,000 new listings expected in the next two years. Grey market premiums have become a key focus for retail investors, but this activity has also raised concerns about pump-and-dump schemes that can harm small investors. By introducing the “when-listed” mechanism, SEBI hopes to create a fair and transparent system that protects investors while accommodating growing market activity.
SEBI has yet to share details on how this mechanism will work or when it will be implemented. However, if successful, it could completely change how pre-IPO trading operates in India, giving investors a safer and more regulated option.
This step marks SEBI’s effort to balance market growth with investor protection.
