Sebi’s New When-Listed Trading Platform Explained

January 24, 2025

The Securities and Exchange Board of India (Sebi) is set to launch a “when-listed” trading platform. This initiative aims to regulate the trading of shares between the allotment phase of an initial public offering (IPO) and their official listing on stock exchanges. This move is designed to tackle the prevalent grey market activities associated with unlisted shares.

What is When-Listed Platform?

The “when-listed” platform will allow investors to trade shares immediately after they are allotted but before they are officially listed.
This change seeks to provide a regulated environment for trading, reducing reliance on the unregulated grey market.
The current system, which involves a three-day waiting period post-allotment, often leads to informal trading activities that Sebi aims to eliminate.

The Grey Market Phenomenon

The grey market refers to unofficial trading before shares are listed. It operates based on supply and demand, allowing investors to buy or sell shares without formal exchange mechanisms. This market is often characterised by speculative trading, where investors gauge potential profits based on anticipated listing prices. The grey market can create volatility and mislead investor expectations.

Current IPO Timeline

Currently, after the closure of an IPO bidding process, shares are allotted on T+1 day, with listing occurring on T+3 days.
This three-day gap has become a hotspot for grey market trading, where investors engage in unofficial transactions.
The “when-listed” platform aims to fill this gap with regulated trading options.

Mechanics of Grey Market Trading

When a company announces an IPO, grey market activities commence with brokers who specialise in these unofficial trades.
They establish a price band for the IPO and add a premium.
For instance, if the IPO price band is set at Rs 90-100, the grey market premium could elevate the price to Rs 110-130.
Trades are settled based on the opening price on the official listing day, exposing investors to the risk of losses if the stock opens lower than their grey market purchase price.

Benefits for Investors

The introduction of the “when-listed” facility will allow investors to trade their allotted shares in a regulated market, enhancing transparency and security. According to Buch, once shares are allotted, investors should have the right to sell them in an organised manner rather than relying on informal channels. This shift is expected to stabilise market sentiments and reduce volatility associated with speculative trading.

Industry Perspectives

Market experts believe that the grey market creates unnecessary risks for retail investors. Jyoti Prakash Gadia, a merchant banker, noted that the grey market’s volatility can skew market perceptions and should be controlled. The establishment of a formal trading platform will not only legitimise trading activities but also protect investor interests by mitigating dubious transactions prevalent in the grey market.

Future Considerations

While the “when-listed” platform is a positive step, market participants urge Sebi to address grey market activities that begin with the announcement of an IPO. A comprehensive approach to regulating these activities could further safeguard retail investors and ensure a fair trading environment.

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