SEBI rolled out a framework marking pledged shares as “non-transferable” during lock-in, simplifying compliance and enhancing transparency. The regulator also extended IPO observation letter validity amid market challenges.

Sebi eases compliance norms for IPO lock-in of pledged shares

Market regulator Securities and Exchange Board of India (Sebi) on Tuesday introduced a new framework aimed at simplifying compliance and enhancing transparency in the handling of pledged shares under capital market regulations. In a circular issued to stock exchanges, depositories, and merchant bankers, the regulator said that securities where a traditional lock-in cannot be enforced will now be marked as “non-transferable” for the duration of the lock-in period.

This move follows amendments made on March 21 to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.

To operationalise the mechanism, depositories have rolled out a detailed framework requiring issuers to incorporate relevant provisions in their Articles of Association, notify lenders or pledgees, and ensure adequate disclosures in offer documents.

Sebi noted that depositories have already upgraded their systems to support the revised process. Market infrastructure institutions and issuers have been directed to ensure full compliance with the new mechanism.

The move is part of Sebi’s broader push to improve ease of doing business while safeguarding investor interests and strengthening market discipline.

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With this move, the Indian capital markets regulator has plugged a key gap in IPO rules by enabling a new mechanism to enforce lock-in on pledged shares. There has been a long-standing demand to rectify this issue.

The move comes following a Sebi relief on Monday to companies planning to tap the capital markets by granting a one-time extension for the validity of its observation letters, citing challenging market conditions due to ongoing geopolitical tensions in the Middle East.

Under existing norms, companies are required to launch their public issues within 12 to 18 months from the date of receiving SEBI’s observations. However, the regulator noted that issuers are facing difficulties in mobilising funds and accessing capital markets amid subdued investor participation and heightened uncertainty.

Following representations from industry bodies, SEBI has decided to extend the validity of observation letters that are set to expire between April 1, 2026 and September 30, 2026. These will now remain valid until September 30, 2026, giving companies additional time to proceed with their fundraising plans.

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