REGULATORY GAPS IN THE TRADING OF UNLISTED SHARES IN INDIA: A LEGAL ANALYSIS OF INVESTOR PROTECTION
AUTHOR – ROHAN TADASAD, 3RD YEAR LAW STUDENT, SCHOOL OF LAW,CHRIST(DEEMED TO BE UNIVERSITY),BENGALURU
BEST CITATION – ROHAN TADASAD, REGULATORY GAPS IN THE TRADING OF UNLISTED SHARES IN INDIA: A LEGAL ANALYSIS OF INVESTOR PROTECTION, INDIAN JOURNAL OF LEGAL REVIEW (IJLR), 6 (2) OF 2026, PG. 140-148, APIS – 3920 – 0001 & ISSN – 2583-2344.
Abstract
The trading of unlisted shares in India has expanded significantly over the past decade, propelled by the rapid growth of start-ups, venture capital–backed enterprises, and companies preparing for Initial Public Offerings (IPOs). Investors increasingly seek pre-IPO equity exposure to capture listing gains, resulting in the emergence of a parallel grey market in unlisted securities. However, while India maintains a comprehensive regulatory framework for listed securities under the Securities and Exchange Board of India Act, 1992 (SEBI Act), the Securities Contracts (Regulation) Act, 1956 (SCRA), and the Companies Act, 2013, the secondary trading of unlisted shares operates within a fragmented and largely unregulated environment.
This regulatory lacuna generates significant investor protection concerns, including information asymmetry, valuation opacity, fraudulent intermediation, illiquidity risks, and absence of structured grievance redressal mechanisms. The lack of standardized disclosure norms and price discovery systems undermines transparency and market integrity. This paper critically examines the existing statutory framework governing unlisted securities in India, identifies structural regulatory gaps, and evaluates judicial and administrative responses. A comparative analysis of regulatory models in the United States, the United Kingdom, and Singapore is undertaken to identify best practices.
The paper argues that India’s current approach characterized by regulatory silence rather than active oversight exposes retail investors to disproportionate risk and weakens public trust in capital markets. It concludes by proposing comprehensive reforms including mandatory registration of intermediaries, calibrated disclosure obligations for frequently traded unlisted companies, standardized valuation norms, investor eligibility restrictions, and establishment of a specialized grievance redressal framework. The study contends that regulatory intervention is necessary not to stifle capital formation, but to ensure balanced investor protection and sustainable market development.
Keywords: Unlisted shares, grey market, SEBI, private placement, investor protection, securities regulation, secondary trading.