SEBI’s ‘when-listed’ platform and how it could impact investors?

Why in the NEWS?

• Recently, SEBI’s (Securities and Exchange Board of India) ‘When-Listed’ platform is in the news as it will eliminate unregulated grey market trading during IPO (Initial Public Offering) and create a transparent and secure trading environment.

Key Points:

• The number of IPOs in India has increased rapidly in the last few years and many IPOs have seen huge demand and oversubscription. This has led to increased investor interest in stock trading before listing.
• The grey market, which deals in IPO shares informally, operates without any regulation. The 'When-Listed' platform is being introduced to turn this trading into a regular and transparent process.
• This platform will allow regulated trading of shares specifically in the period between allotment and listing of shares following the IPO (Initial Public Offering) process.

What will you read next in this topic?

1. What is the "When-Listed" platform?
2. Impact of the grey market:
3. Objective of the new platform:
4. Current listing timeline and importance of "T+3":
5. Investor Benefits:
6. Market impact and regulatory outlook:
7. What is an IPO and how does it work? 
8. SEBI and its main functions:

What is the "When-Listed" platform?

• The "When-Listed" platform aims to regulate informal trading activities, known as the grey market, that take place in the interval between the bidding process for an IPO ends and the listing of shares. 
• The platform will provide investors with a legitimate and secure opportunity to trade shares during this period. 
• This initiative will seek to reduce the irregularities of the grey market, thereby providing greater security and transparency to investors.

Impact of the grey market:

• The grey market is the informal market in which IPO shares are traded before listing. 
• This market is not regulated and involves risk. Investors look at the grey market premium before bidding for an IPO, which influences the investment decision. 
• When the shares open on the listing day, investors may make a profit or loss, depending on the difference between the grey market premium and the listing.
• Due to the irregularity, volatility, and suspicious transactions of the grey market, SEBI has decided to bring such trading under a regulatory body.

Objective of the new platform:

• SEBI aims to regulate the activities of the grey market, which is an unregulated and unsafe form of trading, through the "When-Listed" platform. 
• Through this platform, investors will get a chance to trade what currently happens in the grey market, but now it will be in a regulated and controlled environment.
• This will not only increase the transparency of trading, but will also give more confidence to investors as they will no longer have to face suspicious activities. 
• According to SEBI, if investors have received their allotment of shares, they will get an opportunity to sell it in an organized market itself, which will increase credibility and security in trading.

Current listing timeline and importance of "T+3"

• Currently, shares are listed on the stock exchange within three working days (T+3) after the IPO. 
• During this period, investors trade in the grey market. For example, when the price band of an IPO is fixed, a premium is fixed above these price bands in the grey market. 
• These types of activities take place before listing, in which the share price can be volatile.
• Investors have to bear the risk in this process, as they make profit or loss based on the premium and the share price on the day of listing. 
• This volatility can be reduced through the "When-Listed" platform, as now investors will be able to do this trade in a controlled manner.

Investor Benefits:

• The "When-Listed" platform can have many advantages for investors. Firstly, investors will get the opportunity to trade their shares in an organized and regulated market. 
• This will protect them from potential fraud and irregular activities. 
• Also, trading under the regulatory framework of SEBI will provide more transparency and security.
• Secondly, this platform will provide them with the facility to trade immediately after the allotment of shares, giving them a chance to take quick decisions according to their investment strategy. 
• This can benefit retail investors, who are often confused due to grey market activities in the market.

Market impact and regulatory outlook:

• The launch of the "When-Listed" platform could lead to significant reforms in the Indian stock market. 
• Also, it will give investors a chance to trade in a safe and transparent environment, which will ultimately enhance the credibility of the market.
• However, experts believe that SEBI should keep a more stringent watch on grey market activities, especially in the period before the announcement of an IPO. 
• This will provide greater protection to the interests of retail investors.

What is an IPO and how does it work?

• IPO means Initial Public Offering. It is a process through which a private company lists its shares in the stock market for the first time to sell them publicly.
• Through IPO, the company tries to raise capital so that it can expand its business, repay debt, or invest in new projects.
• Initial planning: 
  • The Company first prepares for its IPO, which includes preparing financial documents, internal accounting, and correcting legal documents.
• DRHP (Draft Red Herring Prospectus): 
  • This is a document in which the company gives its business information, financial position, and other necessary details related to the IPO. After this SEBI approves it.
• Price band and subscription: 
  • A price band is fixed for the IPO, which gives investors an idea of ​​the share price. Investors bid for shares within that band.
• Share Allotment: 
  • When the IPO application closes, the company allots the investors the shares they have bid for.
• Listing: 
  • Finally, the company's shares get listed on the stock exchange (like NSE, BSE), and investors can buy and sell them publicly.

SEBI and its main functions:

• SEBI (Securities and Exchange Board of India) is the body that controls and regulates the stock market and financial markets of India.
• Headquarters: - Mumbai
• Founded year: - April 12, 1988
• SEBI received statutory powers in 1992 by the Indian Parliament under the SEBI Act, 1992, which empowers it to control and regulate capital markets.

Main functions of SEBI:

• Investor protection: 
  • SEBI protects the interests of investors and ensures that they avoid fraud.
• Regulation and monitoring: 
  • SEBI monitors stock exchanges, brokers, and other market participants to ensure that market rules are followed.
• Development of financial markets: 
  • SEBI aims to make the Indian financial markets transparent and stable, so that investors' confidence is maintained.
• Regulated market operations: 
  • SEBI monitors the operations of IPOs, mutual funds, and other investment instruments.
• Providing guidelines to officials and companies: 
  • SEBI provides guidelines to companies for raising capital and providing correct information to investors.