Mumbai, Aug 21 (PTI) Markets regulator Sebi chairperson Tuhin Kanta Pandey on Thursday suggested introducing a regulated platform for pre-IPO (initial public offering) share trading, potentially replacing existing grey market operations.

This new platform may permit investors to trade shares in a regulated environment in the three-day period between IPO allotment and listing. Also, this initiative may replace the existing unregulated grey market, which currently operates during this period.

At the same time, Pandey said that Sebi is looking to increase the tenure and maturity of equity derivatives products in a calibrated manner. This would curb trading in such products, where 91 per cent of individual traders incurred losses in FY25.

Speaking at the FICCI Capital Market Conference 2025, Sebi chief said pre-listing information is often not enough for investors to make an investment decision.

In a bid to further deepen the capital market and protect investors, he hinted at "an initiative, on a pilot basis - for a regulated venue where pre-IPO companies can choose to trade, subject to certain disclosures".

The initiative, if implemented, will potentially curb trading of unlisted shares on unregulated platforms, often called grey market.

Currently, there is a gap of at least three trading days when the IPO closes for subscription and opens for trading, and during this period trading in the grey market happens.

In the unlisted space, which largely remains unregulated, is getting a lot of traction among investors despite carrying significant risk for a lot of investors.

The remarks come at a time when the Indian IPO market has become very active with the listing of 48 main-board companies so far in 2025.

Notably, the month of August witnessed 11 companies launch their initial share sales, with a few more in the pipeline for the next week.

When asked whether there is any discussion with depositories on the pre-IPO trading platform, he said, "This is only in-principle with what I'm stating".

Pandey said challenges that could confront the regulator range from unnecessary processes, pain points that cause avoidable friction in fundraising, disclosures, and investor onboarding, emerging areas, products and asset classes for creating both demand and supply of capital.

On equity derivatives, Sebi is seeking ways to deepen cash equity markets, while enhancing the quality of derivatives through longer-tenure products.

"We will consult with stakeholders on ways to improve in a calibrated manner the maturity of derivative products so that they better serve hedging and long-term investing," Pandey said.

He said that volumes in the cash market have grown rapidly, doubling in terms of daily traded volumes over a three-year period.

Also, he emphasised that equity derivatives play a crucial role in capital formation, but the regulator needs to ensure quality and balance.

Last month, Sebi whole-time member Ananth Narayan expressed concern over the growing dominance of ultra-short-term derivatives trading and cautioned that such trends could undermine the health of India's capital markets. Also, he had contemplated steps to extend the tenure and maturity of these products.

According to the market regulator's own research, 91 per cent of individual traders in futures and options (F&O) incurred net losses in FY25, collectively losing over Rs 1 lakh crore in funds that could have otherwise contributed to responsible investing and capital formation.

Sebi chairman stressed on the role of transparency, which is key to onboard investors to the capital markets and enable fundraising.

"Innovation in the capital market must lower friction and compliance costs for issuers, investors, and intermediaries while managing the risk. It should also provide a diverse range of opportunities depending upon risk-appetite," he added.

He highlighted the need to constantly create new products and new opportunities, while co-creating with industry and investors, optimum regulations for such growth areas.

According to him, innovative regulatory approaches have helped establish new asset classes, new classes of investors and new methods of raising risk capital. These asset classes include -- alternative investment funds (AIFs), real estate investment trusts (REITs), infrastructure investment trusts (InvITs) and specialised investment funds (SIFs).

Regarding artificial intelligence (AI), Pandey noted that it has the potential to unlock new forms of customer engagement, enable alternative approaches to risk assessments and monitoring, fraud detection and financial inclusion.

At the same time, increased adoption of AI could amplify existing challenges to data protection and cybersecurity, among others.

"We have to think of AI as an assist, not a substitute for judgment. Sebi's proposed guiding principles for AI ML emphasise a tiered approach, data and cyber controls and clear accountability. RBI's free AI committee report also complements this," he said.

The Sebi chief also said that the regulator is contemplating to simplify and rationalise the regulatory framework for ease of doing business without compromising on the investor protection front.

He said that Sebi is working with social platforms to take down misleading market content before damage spreads and would intensify investor awareness and education campaigns on pernicious cyber-frauds.

There are many instances of Fakeapps, cloned websites, and unregistered entities misleading investors.

According to him, Securities Market Approach for Resolution Through ODR portal is live and has resolved 7000 disputes worth Rs 500 crore.

On the industry side, he said that the regulator expects clean edges -- no unregulated advice, clear and timely disclosures, and visible Sebi registration details on every app, site, and social media handles. PTI IAS SP DRR DRR