Investors often track gray market premiums to guess the IPO price, but here’s the catch: The Securities and Exchange Board of India (SEBI) does not recognize or approve the gray market. This lack of regulation makes gray market activities highly discouraged due to lack of disclosure and unclear track records of promoters. Interestingly, SEBI-registered brokers and fintech platforms sometimes encourage trading in unlisted stocks, often creating buzz around limited supply and lack of guarantee of allotment. IPO. Often, they even label certain stocks as “hottest” or “most bought and traded” to lure investors with promises of high returns.

Market experts believe that there is no problem if two parties decide to trade with each other after being agreed, but incentivizing investors is a major concern. “This is a worrying trend because the platforms simply promote the purchase of any stock, they operate like a stock exchange but without any transparency on how and who decides the price and premium,” said a market analyst on condition of anonymity.

However, many brokers differ on this point. “Trading in unlisted shares does not fall within the purview of SEBI. This falls under the Ministry of Corporate Affairs, so SEBI cannot hold back,” said a broker on condition of anonymity.

According to Arun Kejriwal, founder, Kejriwal Research and Investment Services (KRIS), “This is a gray area and SEBI has not specifically barred brokers from facilitating trading in these stocks. »

He also described it as a “typical bull run boom moment phenomenon.”

“Unlisted shares do not come within the regulatory domain of SEBI unless a public market is created in them. SEBI cannot control private transactions, although it can certainly give notice to brokers if they create a buzz about unlisted stocks and actively market them,” said Anil Choudhary, partner at Finsec Law Advisors.

Companies and promoters need to be careful not to resort to gray market bounty tactics to drive up stock prices, a former regulatory official says. “If the number of shareholders exceeds 200, it may create a problem for approval of the IPO as it may be considered as a public issue and SEBI approval may become difficult,” according to the person.

Zee Business has learned from sources that the recent shows of Waaree Energies and Mobikwik were also delayed due to this technicality deemed public. In such cases, the regulator and investment bankers exercise utmost diligence to ensure that no promoter-driven agenda is at play. If the issue remains stuck due to such technical reasons, the Investors may face uncertainty as their money is blocked.

Experts are more concerned about new-age tech companies because they often face losses when filing for IPOs and burn through cash to maintain market share. For many, scaling and becoming profitable becomes difficult. Additionally, their business models are easy to replicate, so viability becomes an issue.

Cyber ​​fraud

“Seeing the huge interest among investors, fraudsters are creating fake apps to buy and sell such unlisted/pre-IPO stocks, where investors are sure to lose money,” said market expert Rakesh Bansal.

“There is no grievance redressal mechanism for such transactions as these take place in an unregulated space,” Bansal added.

In one case, a Delhi-based investor lost Rs 24 crore in a fake app that promoted such pre-IPO issues, another market expert said.