The Securities and Exchange Board of India (SEBI), on Thursday, proposed key reforms to address long-standing challenges around locking in pre-IPO pledged shares and simplifying public issue disclosures. 

The market regulator suggested these changes through amendments to the Issue of Capital and Disclosure Requirements (ICDR) Regulations, 2018.

At present, pre-issue shareholding other than that of promoters must be locked in for six months after listing.

Depositories, however, encounter technical difficulties in establishing such locks when shares are pledged, which causes last-minute compliance issues for issuers, especially those with sizable or dispersed shareholder bases.

SEBI has suggested enabling depositories to designate pledged shares as “non-transferable” for the lock-in period in response to directives from the issuer in order to address this.

Companies would also have to change their articles of association to make sure that shares remain locked in, whether in the pledgee’s or pledger’s account, when a pledge is released or invoked.

According to reports, the suggested framework has been approved by non-banking financial companies (NBFCs) that make loans against unlisted shares.

Additionally, SEBI has suggested replacing the abridged prospectus, which is a condensed version of the IPO offer document that is currently required with every public issue, with a more succinct and uniform “offer document summary”.

The proposed summary would be posted on the websites of the issuer, lead managers, stock exchanges, and SEBI, and it would be filed with the draft offer document.

Key business and industry details, significant risks, financial highlights, litigation information, and promoter profiles would all be included in its streamlined disclosures for retail investors.

In light of growing concerns that lengthy prospectuses deter retail investors from interacting with official documents and instead direct them to informal or unverified information sources, the regulator said that the move aims to make IPO disclosures more investor-friendly.