Sebi Plans To Revise ICDR Regulations For Companies Planning To Tap Primary Market

The primary market is expecting renewed excitement with the launch of the first mainboard issue of 2025. After a stellar run in 2024, the primary market saw investors returning to the primary market as the public issues of Iware Supplychain Services. Ather Energy, Kenrik Industries, and Arunaya Organics kept D-Street buzzing.

Amid this renewed excitement, the Securities and Exchange Board of India (Sebi) has proposed changes to the Issue of Capital and Disclosure Requirements (ICDR) Regulations, 2018 for companies which plan to tap the primary market.

In a working paper released on April 30, 2025, the market regulator proposed that select shareholders such as directors, key managerial personnel and current employees of companies which plan to file papers for an initial public offer (IPO) will need to convert the shares they own into dematerialised form.

The market regulator’s proposal is aimed at decreasing the inefficiencies and risks related to holding shares in physical form. Notably holding shares in physical form exposes investors to risks such as loss, theft and forgery.

“Despite these regulatory interventions, a good number of physical shares continue to exist, particularly among unlisted entities that are transitioning to listed status. Hence, physical shares of public shareholders of unlisted companies get carried forward and perpetuated into the listed domain, while listing, adding the volume of physical shares of listed domain,” Sebi said.

According to the market regulator’s sent norms all specific securities which are owned by the promoters of a company must be in a dematerialised form prior to the filing of the draft papers. However the regulator has proposed that the requirement to dematerialise shares should be extended to mitigate the issue of having a high volume physical shares with pre-IPO shareholders.

“In spite of several regulatory mandates and facilitation mechanisms being in place, there remains a significant volume of holding of physical shares even among critical pre-IPO shareholders, such as directors, key managerial personnel (KMPs), senior management, selling shareholders, and even qualified institutional buyers (QIBs). This leaves a regulatory gap that allows a good volume of physical shares to continue existing post-listing,” Sebi said.

Sebi also said that entities such as ‘stock-brokers, non-systemically important non-banking financial companies (NBFCs) and any other regulated entities which hold securities should also convert them into dematerialised form. The regulator also invited comments from the public on the working paper by May 20, 2025.