CURRENT AFFAIRS
CURRENT AFFAIRS
Description
The Securities and Exchange Board of India (SEBI) is set to introduce a “when-listed” trading platform to regulate the trading of shares between their allotment in an initial public offering (IPO) and their official listing on stock exchanges. This initiative aims to curb grey market activities related to unlisted shares.
About When-Listed Platform
The new “when-listed” platform will allow investors to trade shares immediately after they are allotted, but before they are officially listed on the stock exchange. This initiative seeks to create a regulated environment for trading during the interim period, reducing the reliance on the unregulated grey market. Currently, a three-day waiting period exists between share allotment and their listing, which often leads to informal trading activities that SEBI intends to eliminate.
Grey Market Issue
The grey market refers to the informal, off-market trading of shares before they are officially listed. It operates outside formal exchanges and is driven by supply and demand, with prices often being influenced by speculative trading. This market can lead to volatility and cause investor expectations to be based on incorrect or misleading information, creating an unpredictable investment environment.
Existing IPO Process
Currently, after the IPO subscription process ends, shares are allocated on T+1 day, and the listing happens on T+3 days. This three-day gap has become a prime period for grey market trading, where shares are bought and sold unofficially. The “when-listed” platform aims to address this gap by offering a regulated mechanism for trading during this period.
Mechanics Of Grey Market Trading
When an IPO is announced, brokers in the grey market begin unofficial trading based on supply and demand. They create a price band for the IPO and often add a premium. For example, if the IPO price is set between Rs 90-100, the grey market price might increase to Rs 110-130. These trades are settled based on the stock’s opening price on the listing day, leaving investors exposed to potential losses if the stock opens lower than the grey market price.
Benefits For Investors
The introduction of the “when-listed” platform will allow investors to trade their allotted shares in a regulated environment, promoting greater transparency and security. As per SEBI officials, once shares are allotted, investors should have the option to sell them through a formal mechanism instead of relying on informal and speculative channels. This move is expected to reduce market volatility and improve investor confidence.
Industry Viewpoints
Market professionals argue that the grey market introduces unnecessary risks for retail investors. Jyoti Prakash Gadia, a merchant banker, highlighted that the volatility of the grey market often distorts market perceptions and should be regulated. By formalising the trading process, SEBI aims to protect investors from fraudulent and speculative activities that are common in the grey market.
Future Considerations
While the “when-listed” platform is a step in the right direction, experts suggest that SEBI should take further measures to regulate grey market activities that start as soon as an IPO is announced. A more comprehensive strategy to tackle these activities could help create a more stable and fair trading environment for retail investors.
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