Easy-to-read IPO summary, easier lock-in rules for pledged shares on cards

The market regulator on Thursday proposed to simplify IPO disclosures and ease hurdles related to locked-in shares, measures expected to benefit both retail investors and issuers.

The Securities and Exchange Board of India (Sebi) recommended introducing a new ‘offer document summary,’ a concise and standardized version of the draft red herring prospectus (DRHP) and red herring prospectus (RHP). A Sebi consultation paper said this would give investors a quick, readable overview of the company’s business, financials, promoter background, key risks and the purpose of the issue. It will replace the current abridged prospectus, often criticized for being repetitive and hard to navigate.

The recommendation is part of proposed amendments to Sebi’s Issue of Capital and Disclosure Requirements (ICDR) Regulations. Sebi has invited comments on the proposals till 4 December 2025.

Under the proposal, issuers will be required to host the summary and the full offer document on their own website, as well as those of Sebi, the stock exchanges and the lead managers. Each IPO application form will carry a QR code pointing to these documents, making them more accessible for investors. Sebi believes this format will improve investor comprehension, particularly for retail investors who find current disclosures dense and difficult to interpret.

“It has been observed 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 in the consultation paper. “Public comments on draft offer documents remain negligible,” it added.

Lawyers said there is scope to simplify the document further for retail investors.

“An offer document summary is a good thing, but there is scope to reduce the prospectus’s size. A US prospectus is a fraction of the size of its Indian counterpart. We don’t need a thousand-page prospectus,” said Sandeep Parekh, managing partner at Finsec Law Advisors.

Prakash Bulusu, joint CEO of IIFL Capital welcomed the proposal, stating it balances transparency with simplicity. “It will make IPO disclosures more investor-friendly and accessible, while maintaining the integrity of information,” he said.

Sebi also reviewed the framework governing the lock-in of pre-issue capital under Regulation 17 of the ICDR Regulations.

At present, the pre-issue capital held by promoters and persons other than promoters are locked in for specified periods after listing. The Sebi paper said issuers face practical difficulties in meeting these lock-in requirements when shares have been pledged before the IPO. The existing system of depositories does not allow lock-in of pledged shares, creating operational challenges at the time of listing. Since shares of an issuer are freely transferable, shareholders can create pledges at any time before the shares become subject to lock-in. This often leaves issuers struggling to comply with Sebi’s timelines when the number of shareholders is large or when some are untraceable or unwilling to cooperate.

To resolve these issues, Sebi proposed to allow pledged shares to be treated as locked-in for the required period, even when depositories cannot technically create a lock-in due to the pledge. The regulator suggested that issuers amend their Articles of Association (AoA) to specifically recognize that pledged equity shares will be treated as locked in for the applicable period. In cases where the pledge is invoked, the shares transferred to the pledgee’s account will continue to remain locked in for the balance period. Similarly, when the pledge is released, the shares will revert to the pledger’s account and remain locked in for the remainder of the period.

Issuers will be required to inform all existing lenders or pledgees of these changes to the AoA. Depositories will also have to update their systems to ensure that after the invocation or release of a pledge, the shares in the relevant account, whether of the pledger or pledgee, are automatically marked as locked-in for the rest of the period.

To implement this, a new clause is proposed under Regulation 17, allowing depositories, on the issuer’s instruction, to mark pledged shares as “non-transferable” for the duration of the lock-in, in cases where a traditional lock-in cannot be created.

The change is intended to bring both legal and operational clarity on handling pledged shares during the lock-in period while improving ease of doing business and safeguarding the interests of lenders.

“Easing lock-in and compliance norms, especially around pledged shares, will further streamline the IPO process and encourage broader participation in India’s capital markets,” Bulusu of IIFL Capital said.