The Securities and Exchange Board of India (Sebi) has strengthened initial public offering (IPO) regulations by introducing a mechanism to enforce lock-in on pledged shares through system-level tagging, a move aimed at closing regulatory gaps and enhancing investor protection.

In a notification dated April 8, the regulator said it had amended the ICDR Regulations on March 21, 2026, enabling depositories to tag certain shares as “non-transferable” during the lock-in period, particularly in cases where a conventional lock-in cannot be imposed. This ensures that even pledged shares cannot be transferred until the lock-in requirements are fulfilled.

“Securities on which lock-in cannot be created may be recorded as ‘non-transferable’ by depositories for the duration of the applicable lock-in period,” Sebi said.

Market participants see the move as a step towards improving governance standards in IPOs, enhancing transparency, and strengthening investor confidence in primary markets.

To operationalise the mechanism, depositories have issued detailed guidelines for issuers. These include incorporating relevant provisions in the Articles of Association, informing lenders or pledgees, and making appropriate disclosures in offer documents.

“The depositories have made necessary changes to their systems and processes,” the regulator noted.

The move addresses a long-standing concern that pledged shares could potentially bypass lock-in requirements. By tagging them as non-transferable, Sebi aims to ensure that promoter holdings and other locked-in shares remain ring-fenced during the specified period.

“Stock exchanges, depositories, merchant bankers, and issuers shall ensure compliance with the mechanism,” Sebi said, adding that the step is intended to “protect the interests of investors in securities and to promote the development of, and to regulate, the securities market.”

Extends IPO observation letter validity amid market volatility

Earlier this week, Sebi also extended the validity of observation letters, effectively its approval for IPOs, offering relief to companies amid ongoing volatility linked to geopolitical tensions in the Middle East.

Based on representations from industry bodies, the regulator has extended the validity of observation letters that were set to expire between April 1, 2026, and September 30, 2026, up to September 30, 2026.

“Considering the above representation and the prevailing market conditions, it has been decided to grant a one-time relaxation from the applicability of penal provisions under the Master Circular for listed entities whose due date for compliance with MPS requirements falls during the period from April 1, 2026 to September 30, 2026,” Sebi said in a notification dated April 7, 2026.

Under existing rules, companies are required to launch their IPO within 12 months (or 18 months in the case of confidential filings) from the date of receiving Sebi’s observation letter.