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The Securities and Exchange Board of India (Sebi) is actively exploring the establishment of a regulated platform for pre-Initial Public Offering (IPO) trading. This initiative, spearheaded by Sebi chief Tuhin Kanta Pandey, aims to provide a transparent and controlled environment for investors to trade shares during the crucial period between allotment and listing, effectively replacing the currently unregulated grey market. Pandey articulated that the move is driven by the inadequacy of pre-listing information available to investors, hindering their ability to make informed decisions. The proposed platform, envisioned as a pilot project, would allow pre-IPO companies to voluntarily participate in trading, contingent upon meeting specific disclosure requirements. This regulated venue intends to curtail the burgeoning activity in the unlisted space, which, despite its inherent risks, attracts a considerable number of investors due to the absence of stringent regulations. The current gap of at least three trading sessions between subscription closure and listing provides fertile ground for grey market operations. Sebi’s intervention seeks to bridge this gap and impose order on a segment that has gained significant traction alongside India’s thriving IPO market. In 2025 alone, 48 mainboard firms have gone public, with August witnessing 11 IPO launches, underscoring the urgent need for regulatory oversight in the pre-IPO trading landscape. While Pandey acknowledged potential challenges, such as unnecessary processes, disclosure requirements, fundraising frictions, and onboarding issues, his remarks emphasize Sebi’s unwavering commitment to balancing innovation with robust investor protection. The regulator is acutely aware of the risks associated with unregulated trading and is determined to create a safer and more transparent environment for all market participants.
In addition to the pre-IPO platform, Sebi is also contemplating extending the tenure and maturity of equity derivative contracts. This move is a direct response to Sebi’s own study, which revealed that a staggering 91% of individual futures and options (F&O) traders incurred losses in FY25, collectively amounting to over Rs 1 lakh crore. This alarming statistic underscores the need for a recalibration of the derivative market to better serve hedging and long-term investing purposes. Pandey stated that Sebi will consult with stakeholders to explore ways to improve the maturity of derivative products in a carefully calibrated manner. While cash market daily volumes have doubled in the last three years, Sebi recognizes that derivatives must be strengthened to enhance their quality and ensure a balanced market. Derivatives play a pivotal role in capital formation, but Sebi is wary of an unhealthy bias toward ultra-short-term contracts, which can lead to excessive speculation and increased risk for investors. Last month, Sebi whole-time member Ananth Narayan raised similar concerns about the dominance of ultra-short-term derivatives and hinted at regulatory measures to extend their maturity. This proposed extension reflects Sebi’s commitment to fostering a more stable and sustainable derivative market that promotes long-term investment and hedging strategies rather than short-term speculation. The extension of derivative contract tenures is expected to reduce the pressure for constant rollover of positions, potentially mitigating some of the risks associated with highly leveraged trading.
Furthermore, Sebi is placing a strong emphasis on enhancing transparency in disclosures, investor onboarding processes, and digital platforms. Pandey emphasized that innovation in the capital market must lower friction and compliance costs for issuers, investors, and intermediaries while effectively managing risk. He underscored the importance of co-creation with industry stakeholders and investors in framing optimal regulations, drawing parallels with past successful innovations such as alternative investment funds (AIFs), real estate investment trusts (REITs), infrastructure investment trusts (InvITs), and specialized investment funds (SIFs), which were developed through a collaborative approach that balanced regulation with market demand. The integration of artificial intelligence (AI) into financial markets is another area of focus for Sebi. Pandey acknowledged that AI has the potential to reshape financial markets by improving customer engagement, risk assessment, fraud detection, and financial inclusion. However, he also cautioned that the adoption of AI could amplify concerns surrounding data protection and cybersecurity. Sebi recognizes the need for a carefully considered approach to AI implementation, emphasizing that AI should be viewed as an assist, not a substitute for human judgment. Sebi’s proposed guiding principles for AI and machine learning (ML) emphasize a tiered approach, robust data and cyber controls, and clear accountability. These principles align with the recommendations outlined in the Reserve Bank of India’s (RBI) recent AI committee report, highlighting the importance of a coordinated regulatory framework for AI in the financial sector.
Sebi is also deeply committed to protecting investors from online fraud, particularly in the digital age. The regulator is actively collaborating with social media platforms to remove misleading financial content before it can spread and cause harm to unsuspecting investors. Pandey warned against the proliferation of “fake apps, cloned websites, and unregistered entities” that are designed to deceive and mislead investors. Sebi intends to intensify its awareness campaigns to educate investors about these risks and empower them to make informed investment decisions. In addition to preventive measures, Sebi is also focused on providing swift and effective redressal mechanisms for investors who have been victims of fraud or mis-selling. The Securities Market Approach for Resolution Through ODR (Online Dispute Resolution) portal has already resolved 7,000 disputes worth Rs 500 crore, demonstrating Sebi’s commitment to speedy investor redressal. On the industry’s role, Pandey stressed the importance of “clean edges,” emphasizing the need for no unregulated advice, clear and timely disclosures, and mandatory Sebi registration details visible on every app, website, and social media handle. This comprehensive approach, encompassing prevention, awareness, and redressal, reflects Sebi’s unwavering dedication to safeguarding investor interests and maintaining the integrity of the Indian capital market. The regulator's proactive stance on pre-IPO trading, derivatives regulation, AI adoption, and investor protection underscores its commitment to fostering a fair, transparent, and efficient market that benefits all participants.
The potential impact of Sebi's proposed pre-IPO trading platform on the Indian capital market is significant. By providing a regulated alternative to the grey market, Sebi aims to reduce information asymmetry and increase transparency in the pre-listing phase. This could lead to more rational pricing of IPOs and reduce the scope for speculative trading. However, the success of the platform will depend on its ability to attract participation from both companies and investors. Sebi will need to carefully design the platform's rules and regulations to ensure that it is attractive to both parties while also maintaining investor protection. The extension of derivative contract tenures is another important step towards promoting a more stable and mature derivative market. By reducing the dominance of ultra-short-term contracts, Sebi hopes to encourage longer-term investment and hedging strategies. This could lead to a reduction in market volatility and improve the overall efficiency of the derivative market. However, the extension of contract tenures could also reduce liquidity in the short-term, so Sebi will need to carefully calibrate the changes to minimize any disruption to the market. Sebi's focus on AI adoption and investor protection is also crucial for the long-term health of the Indian capital market. By promoting responsible AI adoption and protecting investors from online fraud, Sebi can help to build trust and confidence in the market. This is essential for attracting both domestic and foreign investment and ensuring the continued growth of the Indian capital market.
In conclusion, Sebi's proactive and comprehensive approach to regulating the Indian capital market is commendable. The proposed pre-IPO trading platform, the extension of derivative contract tenures, and the focus on AI adoption and investor protection are all important steps towards creating a more fair, transparent, and efficient market. By balancing innovation with regulation, Sebi is helping to ensure that the Indian capital market continues to grow and develop in a sustainable manner. The initiatives outlined by Sebi chief Tuhin Kanta Pandey at the FICCI Capital Market Conference 2025 demonstrate the regulator's commitment to staying ahead of the curve and adapting to the evolving needs of the market. As the Indian capital market continues to grow and become more sophisticated, Sebi's role in maintaining its integrity and protecting investor interests will become even more critical. The successful implementation of these proposed measures will not only benefit investors and market participants but will also contribute to the overall economic growth and stability of India. Sebi's commitment to collaboration with industry stakeholders and investors ensures that the regulatory framework is both effective and practical, fostering a vibrant and thriving capital market that serves the needs of all stakeholders. The Indian capital market stands to gain significantly from these initiatives, solidifying its position as a key driver of economic growth and a destination for both domestic and international investment.
Furthermore, Sebi's emphasis on investor education and awareness is a crucial component of its overall strategy. By empowering investors with the knowledge and tools they need to make informed decisions, Sebi can help to reduce the risk of fraud and mis-selling. The regulator's collaboration with social media platforms to remove misleading financial content is another important step in protecting investors from online scams. In addition to its regulatory and enforcement activities, Sebi also plays a key role in promoting financial literacy among the general public. By conducting outreach programs and providing educational resources, Sebi can help to increase awareness of the risks and rewards of investing in the capital market. This is particularly important in a country like India, where financial literacy rates are still relatively low. By fostering a culture of informed investing, Sebi can help to create a more resilient and sustainable capital market that benefits all citizens. The Securities Market Approach for Resolution Through ODR (Online Dispute Resolution) portal is a testament to Sebi's commitment to providing investors with a quick and efficient way to resolve disputes. By leveraging technology to streamline the dispute resolution process, Sebi is making it easier for investors to seek redressal and hold market participants accountable. This is essential for building trust and confidence in the capital market and ensuring that investors are protected from unfair practices.
Sebi's efforts to promote transparency and accountability in the capital market are also essential for attracting foreign investment. Foreign investors are more likely to invest in markets that are well-regulated and transparent. By implementing robust regulatory frameworks and promoting transparency in disclosures, Sebi can help to make the Indian capital market more attractive to foreign investors. This can lead to increased capital inflows, which can boost economic growth and create jobs. Sebi's collaboration with other regulatory agencies, both domestic and international, is also crucial for maintaining the integrity of the capital market. By sharing information and coordinating enforcement efforts, Sebi can help to prevent cross-border fraud and other illegal activities. This is particularly important in an increasingly globalized world, where financial markets are becoming more interconnected. Sebi's commitment to international cooperation demonstrates its recognition of the importance of working with other regulators to address the challenges of global financial markets. The regulator's proactive approach to addressing emerging risks and challenges is also commendable. By staying ahead of the curve and adapting to the changing needs of the market, Sebi can help to ensure that the Indian capital market remains resilient and competitive. This requires a constant process of innovation and adaptation, as well as a willingness to engage with stakeholders and learn from best practices around the world. Sebi's commitment to continuous improvement is a key factor in its success as a regulator.
In summary, the initiatives discussed by Sebi chief Tuhin Kanta Pandey highlight a multifaceted approach to strengthening and modernizing the Indian capital market. These initiatives, encompassing pre-IPO trading platforms, derivative market enhancements, AI regulation, and investor protection measures, reflect a deep understanding of the evolving landscape and a commitment to fostering a fair, transparent, and efficient market. By balancing innovation with prudent regulation, Sebi aims to create an environment that encourages investment, promotes economic growth, and safeguards the interests of all market participants. The success of these initiatives will depend on the effective implementation of the proposed measures and the continued collaboration between Sebi, industry stakeholders, and investors. As the Indian capital market continues to grow and mature, Sebi's leadership and guidance will be essential for ensuring its long-term stability and prosperity. The emphasis on transparency, accountability, and investor education underscores Sebi's commitment to building a market that is accessible and beneficial to all. By fostering a culture of trust and confidence, Sebi can help to attract both domestic and foreign investment, driving economic growth and creating opportunities for all Indians. The initiatives outlined by Sebi represent a significant step forward in the development of the Indian capital market and demonstrate the regulator's unwavering commitment to its success.
In addition to the specific initiatives outlined above, Sebi's overall regulatory philosophy is also noteworthy. The regulator has consistently emphasized the importance of principles-based regulation, which allows for flexibility and adaptation to changing market conditions. This approach contrasts with rules-based regulation, which can be more rigid and less responsive to innovation. By adopting a principles-based approach, Sebi can ensure that its regulations are effective and relevant in a rapidly evolving environment. Sebi's commitment to stakeholder engagement is also a key factor in its success. The regulator regularly consults with industry participants, investors, and other stakeholders to gather feedback and insights on proposed regulations. This collaborative approach ensures that Sebi's regulations are well-informed and practical, and that they take into account the diverse perspectives of all market participants. Sebi's transparency and accountability are also essential for maintaining public trust and confidence in the capital market. The regulator regularly publishes information about its activities and decisions, and it is subject to independent oversight by the Indian Parliament and the courts. This ensures that Sebi is held accountable for its actions and that its decisions are subject to public scrutiny. Sebi's commitment to integrity and ethical conduct is also paramount. The regulator has a strict code of conduct for its employees, and it takes strong action against any instances of corruption or misconduct. This helps to maintain the integrity of the capital market and to ensure that all participants are treated fairly. Sebi's overall regulatory philosophy is characterized by a commitment to fairness, transparency, accountability, and integrity. These principles are essential for maintaining a healthy and vibrant capital market that benefits all stakeholders.