SEBI warns investors against trading unlisted shares on unauthorised platforms

Market regulator Securities and Exchange Board of India (SEBI) on Wednesday cautioned investors against buying and selling shares of unlisted public companies through electronic platforms and websites that are not recognised by the regulator, warning that participants would not have access to investor protection and grievance redressal mechanisms in the event of disputes.

In a press release, SEBI said it had come to its notice that certain online platforms are facilitating transactions in securities of unlisted public limited companies. The regulator reiterated that such platforms are neither authorised nor recognised by SEBI and advised investors to exercise caution while using them.

SEBI emphasised that recognised stock exchanges are the only entities authorised to provide a platform for fundraising and trading in securities. Details of recognised exchanges are available on the regulator's website, it said.

The latest warning comes amid growing interest among retail investors in pre-IPO and unlisted shares, which are increasingly being marketed through digital platforms promising access to companies before they go public.

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No investor protection in case of disputes

SEBI warned that investors participating on such unauthorised platforms would not be covered by the investor protection framework available under the jurisdiction of SEBI and stock exchanges.

Further, investors would not have access to the grievance redressal mechanism administered by exchanges or the online dispute resolution system managed by exchanges and depositories through smartodr.in.

The regulator also advised investors against sharing sensitive personal information on such platforms because of the associated risks.

Earlier warnings revisited

SEBI noted that it had previously issued similar advisories in December 2024 and August 2016 cautioning investors against transacting on such websites and disclosing sensitive information. The regulator has also issued warnings regarding unauthorised virtual trading platforms offering paper trading, fantasy games and unregistered platforms dealing in unlisted debt securities.

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The fresh advisory suggests that the regulator remains concerned about the proliferation of online platforms operating outside the regulated ecosystem.

Rising interest in pre-IPO shares

The warning comes at a time when investor appetite for unlisted and pre-IPO shares has surged, driven by expectations of listing gains and growing awareness of private market opportunities.

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However, unlike transactions conducted on recognised stock exchanges, trading through unauthorised platforms may expose investors to operational, legal and settlement risks. In the absence of regulatory oversight, participants may find it difficult to seek recourse in the event of disputes.

SEBI's latest communication serves as a reminder that while interest in unlisted securities is growing, investors should ensure that transactions are carried out through legally recognised channels and remain mindful of the risks associated with platforms operating outside the regulator's purview.

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