What Is the When-Listed Platform?

The "when-listed" platform will allow investors to trade shares once they are allotted but before they are listed on the stock exchanges. This new mechanism aims to create a regulated trading environment, reducing dependence on the unregulated grey market. The current system, which involves a waiting period of three days after allotment, often leads to informal trading, a scenario Sebi intends to address.

The Grey Market Issue

The grey market refers to the unofficial trading of shares before they are listed. It operates based on demand and supply, enabling investors to buy and sell shares outside formal exchanges. This market is known for speculative trading, where investors try to predict listing prices, often leading to volatility and misperceptions about the stock’s true value.

Current IPO Process

Under the present IPO process, shares are allotted on the T+1 day after the bidding closes, and the official listing happens on T+3 days. The three-day gap creates an opportunity for grey market trading, which the "when-listed" platform aims to fill by offering a regulated alternative.

Grey Market Trading Mechanism

When an IPO is announced, brokers involved in the grey market start trading unofficially, setting a price band and adding a premium. For example, if the IPO price band is Rs 90-100, the grey market price might rise to Rs 110-130. These trades are settled based on the official listing price, posing risks to investors if the stock opens lower than their grey market purchase price.

Advantages for Investors

The introduction of the "when-listed" facility will allow investors to trade allotted shares in a regulated manner, improving transparency and security. Sebi’s move aims to ensure investors can sell shares in an organised way, reducing reliance on informal channels and stabilising market sentiment.

Industry Reactions

Market professionals agree that the grey market poses unnecessary risks to retail investors. Jyoti Prakash Gadia, a merchant banker, highlighted that grey market volatility distorts market perceptions and needs to be controlled. A formal trading platform will help regulate these activities, providing protection to investors and reducing questionable transactions.

Future Considerations

While the "when-listed" platform is a positive development, experts suggest that Sebi should also address grey market activities that arise when an IPO is first announced. A comprehensive approach to regulating these activities could provide further protection to retail investors and ensure a fairer trading environment.