The Securities and Exchange Board of India (SEBI) is exploring a new mechanism for regulating pre-IPO trading activities through a concept called 'when-listed' securities. This proposed measure would oversee the trading of stocks between an IPO's allotment and its official listing. According to SEBI's chief, Madhabi Puri Buch, the aim is to allow investors to engage in these trades in a regulated manner, as there is existing demand for such transactions.

Currently, the pre-IPO market operates differently from the grey market, as it involves formal transactions that happen outside of official trading platforms but with slightly more structure than the unregulated grey market. Brokers facilitate these trades, often involving individuals with pre-IPO allotments such as employees holding ESOPs, who wish to profit from their stock holdings before the IPO opens. The pre-IPO market tends to operate with higher broker fees compared to the stock market, and trades are settled weekly, with premiums attached to the stock's future listing price.

While SEBI's proposed mechanism aims to address concerns about rising activity in this unregulated market, some brokers and experts remain skeptical about its success. The new regulations would require an expansion of SEBI's current authority, which is mainly focused on listed securities. Traders may also be hesitant to adopt a formal mechanism as they may prefer to keep their trades off-record, especially larger traders who favor the cash-based system. The increased attention on IPOs and grey market premiums indicates that changes in the regulatory framework might be imminent, but the implementation timeline and detailed regulations remain unclear.