The Securities and Exchange Board of India (Sebi) has introduced a mechanism to lock in pledged shares, particularly those of initial public offering (IPO)-bound companies. This effectively restricts the sale or transfer of shares, especially by promoters, during their lock-in period. Depositories will now consider such shares to be ‘non-transferable’ for the applicable lock-in period, as per a circular issued by the markets regulator on Wednesday.
Earlier, the lack of a technical mechanism allowed pledged shares to bypass conventional lock-in restrictions. Sebi’s regulations require pre-IPO shares to be locked in for six months post listing, with an aim to prevent sudden rise in supply of shares in the market.
Sebi said that depositories have made necessary changes to their systems and processes to enable the lock-in mechanism, such as incorporation of articles of association, issuance of necessary intimations to the concerned pledgees, and suitable disclosures in the offer documents. It also directed stock exchanges, merchant bankers, and issues to ensure compliance with the mechanism.
The circular follows a notification on March 21 when Sebi had made amendments to its Issue of Capital and Disclosure Requirements (ICDR) Regulations, 2018. Sebi said the mechanism has been introduced to protect the interests of investors and to regulate the securities market.