Context: The Securities and Exchange Board of India (SEBI) is introducing a "when-listed" platform to reduce grey market activity.
Relevance of the Topic:Prelims: Terms related to Capital Market, Stock Exchanges
What is a Grey Market?
- A grey market is an unofficial market for financial securities. Grey market trading generally occurs when a stock that has been suspended from trades off the market, or when new securities are bought and sold before official trading begins.
- Grey market enables the issuer and underwriters to gauge demand for a new offering because it is a “when issued” market (i.e., it trades securities that will be offered in the very near future).
- Grey market is an unofficial & not regulated one but is not illegal.
- SEBI is concerned about the grey market because:
- It involves high-risk, unregulated transactions
- It often misleads retail investors into making decisions based on price premiums that may not reflect the true value of the stock.
New ‘When-listed’ platform
- Aim: To reduce ‘grey market activity’ in companies’ stocks.
- How does it work?
- This platform will allow trading of shares between the allotment of shares after an Initial Public Offering (IPO) and the official listing on stock exchanges.
- It will provide a regulated environment for trading unlisted shares during this interim period.
- SEBI is trying to address the issue of grey market with the "when-listed" platform.
- Currently, investors engage in unofficial trading (kerb trading) during this period, which SEBI wants to regulate.
- The "when-listed" platform will formalise this process and offer a safer, organized option for investors.
- Benefit to Investors:
- Provide investors with a secure, regulated environment to trade shares they have been allotted in an IPO, even before the shares are officially listed.
- Ensures transparency and reduces the risks associated with grey market trading.
- Investors can sell their allotted shares in a legitimate, monitored market, providing them with a safer and more reliable option.