Sebi Considers Stepping Into Unlisted Share Market Territory
The Securities and Exchange Board of India is actively exploring whether it can extend its regulatory reach into India's unlisted share market. This market segment currently operates largely outside Sebi's formal jurisdiction. Sebi chairperson Tuhin Kanta Pandey made this revelation during the Association of Investment Bankers of India annual convention for 2025-26.
Regulatory Jurisdiction Under Discussion
"This is under discussion with the Ministry of Corporate Affairs," Pandey stated clearly. "We have to see whether we do have regulatory powers to get into an area which is an unlisted area and how far that unlisted area goes." He made these comments on the sidelines of the important banking convention held on Thursday.
The unlisted market consists of equity shares from companies that are not listed on any stock exchange. These shares do not trade publicly through normal market channels. Investors typically access this market through private transactions with existing shareholders. They might also participate through employee stock option plans or various financial intermediaries.
Current Oversight and Disclosure Challenges
Unlike publicly listed companies, unlisted entities face much less stringent disclosure requirements. They are not subject to continuous, rigorous reporting standards. This situation often results in limited information about their financial performance. Details about business risks may also be delayed or incomplete.
Oversight of this market currently rests primarily with the Ministry of Corporate Affairs. Sebi's regulatory role traditionally begins only when a company decides to list its shares publicly through an initial public offering.
Pricing Mismatches Raise Concerns
Pandey highlighted a significant issue regarding pricing discrepancies. He pointed to mismatches between valuations in the unlisted market and prices discovered during the IPO book-building process.
"There is of course an issue that when it comes for listing, there is a mismatch between what are the pricing they have done on the unlisted side and what is the prices which are discovered when the book is built," Pandey explained carefully.
He emphasized that rules designed for listed entities cannot simply be copied and applied to the unlisted market. Pandey reiterated that Sebi's involvement has traditionally started only when a company approaches its listing phase.
NSE IPO Evaluation Progresses
Regarding the National Stock Exchange's proposed initial public offering, Pandey provided an update. He confirmed that Sebi is currently evaluating the exchange's settlement application. "That is in the process of our different committees. But in principle, we agree with the settlement," he stated clearly.
Pandey had previously indicated that Sebi would likely issue a no-objection certificate for the NSE IPO by month's end. He shared this information during a press conference held last week.
The exchange's listing plans have faced delays due to the ongoing dark fibre case. This case involves allegations that certain high-frequency traders received preferential access to NSE's co-location servers between 2010 and 2014. They allegedly gained this access through faster private communication lines.
Market infrastructure institutions like stock exchanges face special requirements. They must secure a no-objection certificate from Sebi before filing their draft red herring prospectus. This requirement distinguishes them from regular companies seeking to go public.
Corporate Disclosure Gaps Persist
Pandey also addressed ongoing issues with corporate disclosures. He warned that persistent shortcomings undermine market transparency. These gaps also slow down fundraising activities by triggering repeated regulatory queries.
"Sebi continues to observe recurring disclosure gaps that reduce transparency and investor understanding," Pandey noted seriously. "These gaps also lengthen the fundraising timeline through repeated regulatory queries."
The regulator has identified several key areas requiring improvement. Pandey specifically mentioned disclosures related to capital structure. These should clearly outline past capital raisings and preferential allotments. Any changes in control, particularly those undertaken close to an IPO, must be fully disclosed.
