Tuhin Kanta Pandey Signals SEBI’s Plan to Regulate Pre-IPO Grey Market for Transparency

The Indian capital market stands on a significant transformation, as the Securities and Exchange Board of India (SEBI), led by Chairperson Tuhin Kanta Pandey, indicates the informal pre-IPO grey market under its watchful eyes and to bring it under a regulated structure. 

India's capital markets may be on the verge of introducing upbringing structural change. At a time when the IPO pipeline is booming with around ₹4.3 trillion collected in FY25 and another ₹1.4 trillion is expected soon. SEBI chairperson Tuhin Kanta Pandey has indicated on the installation of a regulated platform for pre-IPO share trading. Recently, the idea of ​​floating at the Capital Markets Conference is to bring orders and transparency to the place dominated by the grey market.

This proactive stance is not just a bureaucratic exercise; This represents a fundamental change towards increasing transparency, promoting better value search and protecting investor interests in the rapid dynamic market. This step is a deliberate attempt to formalize a place that has been operated in the shade for a long time, aligning it with strong regulatory principles that govern public markets.

Understanding the Grey Market

At its core, the grey market is an informal, over-the-counter space, where shares of companies preparing IPOs are traded. These transactions are outside the scope of formal stock exchanges and regulatory bodies, which rely on personal agreements between buyers and sellers. Although it offers a tentalizing glimpse in potential future valuation, its unregulated nature means that it lacks fundamental safety measures in the official markets.

There are no standardized revelations, there is no clear pricing mechanism, and severe, no legal support if a transaction is provoked. This optimism cooks an atmosphere for speculation and information asymmetry, making it an uncertain area, especially for investors who may have resources or expertise lacking to navigate its complications.

As Mr. Pandey clarified, insufficient pre-list information often prevents investors from making informed decisions. The lack of transparency of the current grey market may distort valuation and highlight investors. A regulated platform will address these pain points.

Why SEBI is Eyeing the Grey Market

Today, much of the pre-IPO activity happens in the grey market—an informal system where shares of companies about to list are traded on the basis of private agreements between buyers and sellers. Prices are often dictated by sentiment and speculative demand rather than structured disclosures.

This system, while popular, carries obvious risks. Settlement failures are not uncommon. There’s little transparency on how valuations are determined. And retail investors who increasingly participate in IPOs are particularly vulnerable to mispricing, misinformation, or even fraud. As Pandey explained, “Before and prior to the IPO debut, if it [the grey market or pre-IPO market] is regulated, it would ease for the companies and investors that can help in price discovery. If it is regulated, then the government also gets its due share of revenue, taxes, by ensuring fair revenue collection and promoting market integrity.

How a Regulated Pre-IPO Platform Could Help Investors

The proposed regulated platform is envisioned as a structured liquidity window before official listing, offering significant advantages, especially for accredited and early investors. Currently, individuals or entities who have invested in companies through private placements, angel rounds, or hold Employee Stock Ownership Plans (ESOPs) often face challenges in realizing their investments before an IPO. 

The existing mainboard IPO compliance processes can be lengthy and cumbersome, effectively locking up their capital. A regulated pre-IPO trading platform will provide these investors a valid avenue to control and sell their stakes in a transparent manner, aligned with their need of liquidity without waiting for an uncertain IPO timeline. This fundamentally converts pre-IPO share trading from informal, opaque deals to a transparent, regulated ecosystem.

By creating a standardised framework, SEBI would also remove the anomalies and irregularities of the grey market. Price discovery will become cleaner, with trades in a transparent environment monitored by exchanges and regulators. For investors, this means low opposition risk, better settlement assurance, and valuation that reflect more realistic reflection of demand and supply.

What a Regulated Venue Means for Investors

The core of SEBI's plan is the establishment of a "regulated venue" for pre-listing trading. For everyday investors, it translates into a far more secure and approximate environment. Imagine a platform where revelations are compulsory, business practices are standardized, and a clear set of checks and balances is in place. This will significantly reduce the risks associated with the existing gray market, which will offer a reliable route to investors to reach pre-IPO shares without navigating the murky water of informal agreements. It is about bringing validity to a place that has long been operated on handshake deals.

If this proposal moves forward, the most visible change will be the formalisation of pre-IPO trading. Transactions that currently take place informally through dealer networks or WhatsApp groups will migrate to a supervised venue.

Liquidity will be easier: Investors won’t be bound to wait for IPO approvals or regulator clearances before monetising holdings.

Regulated disclosures: Companies opting into this system will need to provide basic information that supports price discovery, making the process more transparent.

Defined participation: It is expected that the platform will be limited to first recognized accredited investors, reducing the risk for retail participants who may otherwise be exposed to complex, illegal equipment.

Revenue for the government: Ensure compliance by transferring trades to an official platform, which often cuts cash-based practices associated with the grey market.

Over time, it can also strengthen the IPO pricing because the pre-listing trades in a regulated setup will provide a reliable reference point for market demand.

Beyond IPOs: The Horizon of Derivatives

SEBI's forward-screening approach is not limited to pre-IPO trading. Mr. Pandey has also been cited to extend the tenure of equity derivatives in the latest discussion move, which is moving beyond the current weekly and monthly termination cycles. These subtle yet significant ideas reflect a broad vision for market development. Long-term derivatives can offer catering, more sophisticated hedging and investment strategies for a broad array of participants in the market. Still in the counseling phase, it indicates SEBI's intentions to constantly develop the market infrastructure to meet the demands of a dynamic financial landscape.

Conclusion

The proactive stance of SEBI, from regulating the pre-IPO market to increasing the derivative offerings and breaking over malfunction, paints a clear picture of a regulator committed to promote a strong, transparent and fair capital market.

From the perspective of an ecosystem, it can be a welcome step. A regulated pre-IPO trading platform has the ability to bridge the gap between private and public markets, which offers safe exit, better use of ESOP, and exploration of cleaner value and price discovery the grey market reduction.

If well applied, SEBI's move can set an example for other emerging markets, which can position India as a leader in capital market innovation with strong security measures.