Summary of this article
Sebi proposed automatic lock-in system for pre-IPO pledged shares
The regulator also proposed introducing a concise Offer Document Summary to simplify comprehension for retail investors
The Securities and Exchange Board of India (Sebi) has proposed major changes to pre-initial public offering (IPO) lock-in rules with the objective of enhancing ease of doing business and increasing the participation of retail investors in IPOs.
In a consultation paper released on November 13, Sebi said that the current system makes it difficult to lock in certain shares, especially those pledged by existing shareholders, because “the existing system of the depositories does not allow lock-in of certain shares, such as those under pledge.” This has led to challenges for issuers, particularly in cases where pledges have been created prior to the IPO.
Sebi has invited public comments on the proposals until December 4, 2025. The regulator’s proposals have come at a time when India’s primary market is booming. As many as 188 companies have raised Rs 1.55 lakh crore so far in 2025.
Problem 1: Pledged Shares Complicate Lock-In Compliance
The regulator observed that since shares of a company can be freely transferred, many existing shareholders pledge their holdings before an IPO. This becomes a problem during the listing process because companies often struggle to meet lock-in requirements for these pre-issue shares held by non-promoters.
The challenge amplifies when there are too many shareholders to coordinate with, or when some are untraceable or unwilling to cooperate. This makes it difficult for issuers to meet Sebi’s strict IPO timelines. Sebi noted that the current system needs a review because depositories are unable to create lock-in on pledged shares.
Solution: Sebi Proposes Automatic Lock-In For Pledged Shares
To address this issue, Sebi has proposed a new enabling framework that would allow pledged shares held by non-promoter shareholders to be automatically brought under lock-in for the required period.
The regulator said the change is intended to “enhance ease of doing business, while safeguarding the interest of lenders.” According to the existing system, pledged shares often fall outside the lock-in mechanism, which causes delays and compliance issues for companies preparing to list.
Under the proposal, companies will be required to amend their Articles of Association to ensure that pledged shares are treated at par with other pre-IPO holdings for lock-in purposes. Sebi said in the consultation paper that “equity shares, if pledged, shall be treated as locked-in for the applicable period”. It further clarified that when a pledge is invoked, “equity shares shall be locked-in, in the account of the pledgee for the balance period of lock-in”, and when a pledge is released, the shares would remain locked in the pledger’s account for the remainder of the mandated period.
Sebi has also proposed that if it is not possible to create lock-in in the depository system, “the depositories, upon receipt of instructions from the issuer, shall record such securities as ‘non-transferable’ for the duration of the applicable lock-in period.”
What It Means For Investors: These provisions are aimed at preventing any disruption to the lock-in requirement irrespective of changes in ownership due to pledge actions.
Sebi’s proposals are aimed at removing uncertainty around pre-IPO share movements and strengthen confidence in the listing process. Automatic lock-in of pledged shares, according to the regulator, will ensure that all pre-issue shareholders, whether they have pledged their holdings or not, are subject to the same restrictions.
This is expected to reduce the risk of sudden share transfers or unexpected selling pressure when a company lists on the bourses. This is likely to help create a level playing field and support steadier market sentiment during the listing window.
Clearer, enforceable lock-in rules also make it easier for investors to assess promoter and shareholder commitment, a key factor in evaluating IPO quality.
Problem 2: IPO Offer Documents Are Voluminous And Complex
In addition to the abovementioned proposal, Sebi has also proposed changes in IPO disclosures norms to make information easier for investors, especially retail participants, to understand.
Sebi observed that the draft offer document is “often voluminous and complex, which may not be easy to comprehend”, making it tough for investors to analyse key details, such as risks, financials and business operations. This complexity also discourages many retail investors from reviewing or commenting on draft documents, even though the rules provide a 21-day window for public feedback.
The regulator also said that important information is scattered across multiple sections, which limits investor understanding. Key disclosures, such as major risk factors, financial highlights and key performance indicators are “dispersed across multiple sections,” Sebi said. It added that “mandating a focused, concise and standardised summary of the offer document can enhance investor comprehension, improve information accessibility and may lead to increase in the engagement of retail investors in the IPO process”.
Solution: Sebi Proposes Concise Offer Document Summary
To address this, Sebi has proposed introducing a concise Offer Document Summary. This summary would present all critical information in a standardised and easy-to-navigate format. It would be filed along with the draft red herring prospectus (DRHP) and the final red herring prospectus (RHP) and hosted on the websites of the issuer, stock exchanges, Sebi and lead managers.
With this summary in place, Sebi has suggested scrapping the current abridged prospectus. The regulator argued that the new summary would effectively replace the abridged document and “rationalise documentation requirements”, which is expected to make the public issue process simpler for companies.
Sebi has also proposed rationalising the format of the summary to ensure it highlights the most relevant information that investors typically look for.
What It Means For Investors: Sebi has highlighted that retail investors often rely on secondary and unregulated sources of information, such as grey market trends and unverified social media for making investment decisions. The regulator said that simplifying the offer documents could help reduce retail investors’ reliance on unregulated sources, such as grey market trends or social media discussions, which Sebi cautioned “may not be a desirable input” for making investment decisions.
