Why in news?
SEBI plans to launch a “when-listed” platform for trading of shares of companies that have finished their initial public offering (IPO) and are yet to be listed on stock exchanges.
What’s in today’s article?
- When-Listed Platform
- Benefits of the “When-Listed” Facility for Investors
- Current timeline for listing of shares
- Grey Market Trading in IPOs
When-Listed Platform
- This platform will facilitate trading of shares between IPO allotment and official listing, addressing concerns around unregulated markets.
- Reducing Grey Market Activity
- The grey market involves unofficial, unregulated trading of IPO shares based on demand and supply before listing. It operates in cash with no actual delivery of shares.
- Many retail investors use grey market premiums to evaluate IPO investments.
- Addressing Grey and Kerb Trading
- SEBI aims to eliminate grey and kerb trading during the T+3 period (time from IPO closure to listing) by introducing a regulated alternative.
- Grey market trading and kerb trading both refer to buying and selling shares outside official stock exchanges.
- This usually happens before a company’s shares are officially listed after an IPO.
- Investors trade these shares at a grey market premium based on demand.
- The term "kerb trading" comes from the idea of trading on the street, highlighting its unofficial nature.
- It emphasized that this platform would formalize trading already happening unofficially, providing a transparent, regulated system.
- Collaboration with Stock Exchanges
- SEBI is working with stock exchanges to implement this platform, aiming to provide investors a safe and formal way to trade shares during the pre-listing period.
Benefits of the “When-Listed” Facility for Investors
- Regulated Trading:
- Investors who have received IPO allotment can sell their entitlement in a regulated market, instead of the unregulated grey market.
- Sebi aims to eliminate the informal grey market trading and allow formal trading through an official platform.
- Reducing Market Volatility:
- The grey market is seen as a source of volatility and distorted market sentiments.
- The new platform will help control market instability by ensuring all trading is monitored by the regulator.
- Protecting Retail Investors:
- Market participants suggest that Sebi should address grey market activity starting from the IPO announcement to safeguard retail investors’ interests.
Current timeline for listing of shares
- Currently, after an IPO bidding closes, shares must be listed on stock exchanges within three working days (T+3). Shares are allotted on T+1 day.
- In the gap between allotment and listing, investors engage in grey market trading.
- Sebi aims to reduce this pre-listing grey market activity.
Grey Market Trading in IPOs
- How it Works:
- Investors, due to low chances of IPO allotment, often enter the grey market.
- Trading begins once an IPO announcement is made, with brokers focusing solely on the grey market.
- A premium is added above the IPO price band (e.g., Rs 90-100 per share with a premium of Rs 10-30).
- Investors place bids with grey market operators to buy or sell shares.
- Settlement:
- The opening price on the official listing day determines the settlement.
- If the stock opens higher than the grey market price, operators pay the difference.
- If the stock opens lower, investors incur a loss.
