Sebi plans to introduce pre-listing trading in IPO shares to deter grey mkt activity: Madhabi Buch

Mumbai: Sebi is looking at introducing a system where an investor can sell shares as soon as they are allotted in an Initial Public Offering (IPO) to curb grey market activity, chairperson Madhabi Puri Buch said on Tuesday.

The chief of the capital markets regulator also announced that the top two proxy advisory firms are on the verge of launching a portal which will be a repository of related party transactions and will be useful in judging the governance standards in a company for any stakeholder.

It can be noted that many IPOs in the recent past have seen very high subscriptions, and many of the issuances have also made huge listing-day gains which result in the grey market activity of passing on allotted shares.

Buch, an i-banker turned markets regulator, reminisced that during her banking days, this grey market activity used to be called "curb trading".

"We feel that if anyway investors want to do that, why not give them that opportunity in a proper regulated way?" Buch said, addressing an Association of Investment Bankers of India (AIBI) event here.

"The idea is whatever is the grey market that is going on, pre-listing, we think that is not suitable. If you got an allotment and want to sell your right, sell it in the organised market," she explained reporters later.

Buch said discussions are underway with two stock exchanges to put in place the "when listed" facility where shares can be traded during the three days between the allotment and listing.

"As soon as the allotment is over, the entitlement to that share gets crystallised. Then the person should have the right to sell that entitlement," Buch said.

On the plans of proxy advisors to launch the Related Party Transactions (RPT) portal, the Sebi chief said the two major entities in the fray are on the verge of launching the facility.

It will be a valuable resource for anyone looking to judge the governance of a company and will be a step towards democratisation of information on RPTs, she said.

Buch said proxy firms play an important role in the market and attributed their success to the reliance on the subscriber pays model rather than issuer paying.