Sebi mandates top personnel to hold shares in Demat form ahead of IPO - Key takeaways from regulator's board meeting

SEBI Shakes Up Indian Markets with Sweeping Regulatory Changes

In a landmark decision on June 18th, 2025, the Securities and Exchange Board of India (SEBI) unveiled a series of significant regulatory changes designed to streamline Indian capital markets for both investors and corporations. These updates address key areas, promising increased efficiency and transparency.

Key Highlights of SEBI's New Regulations:

• Demat Mandate for IPOs: SEBI now mandates that select shareholders – including directors and key managerial personnel – must hold their shares in dematerialized (Demat) form before a company files for an Initial Public Offering (IPO). This move aims to reduce risks associated with physical share certificates, such as loss, theft, and forgery, ultimately improving the IPO process. This addresses a significant regulatory gap highlighted by the continued presence of physical shares even among key pre-IPO stakeholders.
• ESOP Retention for Founders: Startup founders can now retain their Employee Stock Ownership Plans (ESOPs) even after their company goes public. Previously, founders were reclassified as promoters, making them ineligible for ESOPs. This change recognizes the crucial role of founders while implementing a one-year cooling-off period between ESOP grants and IPO filings to prevent potential misuse.
• Streamlined PSU Delisting: Public Sector Undertakings (PSUs) now have the option to voluntarily delist from stock exchanges, aligning with the government's disinvestment strategy. This simplifies operations and accelerates the disinvestment process, enhancing efficiency.
• AIF Co-Investment Opportunities: Alternative Investment Funds (AIFs) now have the ability to co-invest in unlisted companies where they already hold investments. This opens doors to high-quality deals and provides AIF investors with expanded opportunities.
• Simplified FPI Framework: SEBI has simplified the regulatory framework for Foreign Portfolio Investors (FPIs) investing in Indian bonds. This reduction in compliance burden is expected to attract more long-term global capital to India, leveraging the lower risk associated with sovereign debt.

These changes represent a significant step towards modernizing India's capital markets, fostering greater transparency, and attracting both domestic and international investment.