SEBI’s pre-IPO pilot for unlisted shares to put grey market under test

SEBI's Pre-IPO Trading Platform: Taming the Grey Market

The Securities and Exchange Board of India (SEBI) is launching a pilot program for a regulated pre-IPO trading platform, a bold move designed to bring India's vibrant, yet unregulated, grey market into the light.

This platform, allowing trading in the brief period between IPO allotment and listing, promises to significantly impact price discovery, disclosure norms for unlisted companies, and investor approaches to IPOs.

The Grey Market's Unreliable History:

The informal grey market, operating outside regulatory oversight, has long influenced investor sentiment. Grey market premiums (GMPs), often seen as predictors of listing gains, have proven surprisingly unreliable. A July 2025 review of 19 IPOs revealed:

• Over 60% listed below their GMPs.
• Around 40% listed below 'Sauda' rates.
• 26% listed at or below the issue price.

High-profile IPOs like Paytm, Zomato, Nykaa, Policybazaar, and Brigade, initially boasting strong premiums, ultimately underperformed post-listing, highlighting the GMP's unreliability.

SEBI's Aim: Reducing the GMP Mismatch:

By formalizing pre-IPO trading, SEBI aims to bridge the gap between grey market expectations and actual listing prices. The proposed three-day trading window will operate under strict regulatory oversight, encompassing:

• Mandatory disclosures
• Registered intermediaries
• Formal settlement norms

Expert Opinions:

• Feroze Azeez, Joint CEO, Anand Rathi Wealth: "Price discovery belongs in the market, not outside it. India needs a regulated pre-IPO marketplace; the current grey market is informal, opaque, and vulnerable to settlement risk. GMP is a poor guide to value, reflecting sentiment, not fundamentals."
• Ragini Singh, Partner, ThinkLaw Advocates: "The regulated platform will mitigate risk and enhance transparency, making price discovery more reliable. The rapid, relationship-based transactions of the grey market may decline."
• Yash Ashar, Senior Partner, Cyril Amarchand Mangaldas: "SEBI needs to balance this with concerns about unlisted companies having numerous shareholders. The disclosure regime for these companies requires careful consideration, along with a path to eventual main board listing."
• Amit Tungare, Managing Partner at Asahi Legal: "This model could reduce grey-market opacity, strengthen price discovery, mitigate fraud, and bring previously untaxed trades into a transparent system, particularly benefiting ESOP holders."

The Broader Impact:

This pilot program, while still in its early stages, holds immense potential. It promises to create a more transparent, accessible price formation process, reducing execution risk for companies and fostering a more mature market. The impact on price discovery, risk management, and overall IPO performance is expected to be significant.

Published on August 28, 2025