Mumbai: India’s lightly regulated market for pre-IPO shares is back in focus after the Enforcement Directorate (ED) launched a probe into the alleged sale of unlisted National Stock Exchange shares, a case that is renewing calls for tighter oversight of the fast-growing segment.
Last week, ED conducted searches at eight locations in Mumbai and Chennai as part of a money laundering investigation linked to the sale of shares of NSE, which is set to hit the public markets soon. The action targeted entities, including Atum Capital Pvt. Ltd, Optimus Financial Solutions Pvt. Ltd, Babli Investment Pvt. Ltd and Supremus Angel, along with their directors.
The agency alleged that these entities duped investors by promising unlisted NSE shares they did not possess. The companies then routed investor money through multiple bank accounts and diverted it into movable and immovable assets.
The development underscores the opaque and risky nature of the unlisted share market. It also comes as the Securities and Exchange Board of India (Sebi) considers bringing the segment under its oversight.
Sebi chairman Tuhin Kanta Pandey said last month the regulator plans to introduce oversight for “to-be-listed” companies through exchange mechanisms, with operational guidelines and consultation papers expected soon. Sebi is also in talks with the central government, since the unlisted market currently falls under the ministry of corporate affairs.
Atum Capital, however, denied any role in the alleged fraud, saying it was itself a victim. “Our role in the transaction was as a buyer…based on a seller’s commitment to deliver them. The shares were to be supplied by a third-party entity that ultimately failed to honour its commitment,” Satish Kumar, director of Atum Capital said in an email response to Mint's query. “A formal complaint has already been filed, and an FIR has been registered with the Economic Offences Wing against the concerned seller.”
Kumar is one of the directors named in the probe for allegedly being part of a cartel that promised investors allocations in unlisted NSE shares. He said Atum Capital is cooperating with all investigative authorities on this matter.
Queries emailed to NSE, Optimus Financial Solutions, Babli Investment and Supremus Angel did not elicit a response till press time.
Pain points
Experts say the latest scandal has exposed key structural gaps in India’s rapidly expanding unlisted share market that may require immediate oversight.
“One of the biggest concerns for investors today is the gap between unlisted market prices and IPO (initial public offering) valuations, which in many cases has widened to 35-40%,” Feroze Azeez, joint chief executive officer at Anand Rathi Wealth Ltd said.
Thin liquidity and limited disclosures lead to opaque price discoveries, creating discrepancies between listed and unlisted prices. Last year HDB Financial Services traded above ₹1,200 in the unlisted market, but its IPO price band was set at ₹820-880, leaving unlisted shareholders with steep losses.
“All of these risks are known to investors, still they purchase unlisted shares and may end up burning their hands,” said Sudhir Bassi, executive director at law firm Khaitan & Co. Investors typically buy unlisted shares hoping companies will list at higher valuations and deliver outsized gains, he said.
This often leaves investors vulnerable to illicit intermediaries who exploit their hype and fear of missing out. As a result, intermediary credibility has become another critical concern. Many institutional investors increasingly prefer Sebi-registered brokers to facilitate private transactions, Azeez said.
The execution of transactions in the unlisted market also poses challenges. Share transfers often occur through private agreements, making verification difficult. Documentation and transfer processes are also not fully standardized, posing hurdles even for experienced investors, Azeez added.
Regulatory challenges
Despite these challenges, retail investor interest in the unlisted space remains strong, reinforcing the case for tighter regulation. NSE’s unlisted shares alone have nearly 184,000 public shareholders, 93% of whom are retail investors willing to absorb sharp price swings. For instance, the shares corrected nearly 20% from their ₹2,400 peak in July 2025 before rebounding about 5% to around ₹2,050 after Sebi’s chief commented on the exchange’s potential IPO, Mint reported earlier.
The unlisted market extends far beyond NSE. India’s unlisted equity space was estimated at more than ₹5 trillion as of mid-2025, driven by late-stage startups, IPO-bound small and medium enterprises and secondary flows of employee stock ownership plans (Esop), according to investment platform Investoedge. Regulating this segment may be complex, warn experts.
“Investors who subscribe to securities of a public limited company derive comfort in the same,” said Bassi from Khaitan & Co. That comfort stems from the Companies Act, 2013, which allows shares of public unlisted companies to be freely transferable, meaning shareholders can sell their holdings without requiring prior approval from the company or other shareholders.
This makes them different from private companies that can place restrictions on share transfers in their articles of association.
Regulation in such cases would be complex and would have to carefully balance the interests of existing shareholders and incoming investors, Bassi cautioned. “Hence, there is no easy fix,” he added.
Possible solutions
Bassi said investor awareness programs akin to the Reserve Bank of India’s (RBI) public awareness campaigns against banking fraud could help, as investments in the unlisted space are often driven more by sentiment than fundamentals.
Akshaya Bhansali, managing partner at Mindspright Legal advocates for a small exchange-like platform for ‘to-be-listed’ companies, as this could help create a formal structure and reduce the scope for exploitation.
Requiring unregulated platforms to register as exchanges or regulated intermediaries could push out smaller or less credible operators, leaving behind stronger players with better governance and infrastructure, said Azeez. Higher capital requirements could also help create a more credible and stable ecosystem for investors, he added.
“One way to approach this could be a tiered framework where established intermediaries with strong track records operate under lighter supervision, while newer or less tested platforms face tighter oversight,” Azeez said.
While multiple ideas on regulating the space are floating around, experts converge on one point: a clearer framework for better institutional participation and improved liquidity in the unlisted market.