SEBI’s new ATS rules for unlisted shares: What investors need

Reviewed by Team BuyUnlistedShares Research Desk

SEBI’s Alternative Trading System (ATS) rules create a regulated framework for private platforms to facilitate trading of unlisted shares, aiming to improve transparency and investor protection while preserving market integrity.

What is an Alternative Trading System (ATS) under SEBI?

An ATS is a private electronic venue that matches buyers and sellers of securities outside the traditional stock exchanges. SEBI’s guidelines require such platforms to register, maintain proper governance, and follow disclosure norms similar to those for recognized stock exchanges, but tailored to the unlisted segment.

Why did SEBI introduce ATS rules for unlisted shares?

Prior to these guidelines, trading of unlisted shares occurred largely through informal channels, which raised concerns about information asymmetry, limited redressal mechanisms, and potential misuse. The ATS framework seeks to bring a degree of oversight, standardise trading practices, and provide investors with a clearer route to liquidity without compromising the private nature of the securities.

Key features of the new ATS framework

• Mandatory registration of the ATS with SEBI and adherence to a fit‑and‑proper criteria for its promoters and directors.
• Requirement to maintain a minimum net worth and to have a robust risk‑management system, including surveillance of trading activities.
• Obligation to disclose pre‑trade and post‑trade information such as the number of shares traded, price, and timestamps, while protecting confidential company data.
• Restrictions on proprietary trading by the ATS operator to avoid conflicts of interest.
• Provision for investor grievance redressal and periodic reporting to SEBI.

How the rules affect liquidity and price discovery

The ATS guidelines aim to create a more transparent venue where buyers and sellers can meet, which may improve the ease of finding a counter‑party compared with completely bilateral negotiations. However, liquidity will still depend on the interest of market participants and the specific characteristics of each security.

Illustrative example (numbers are illustrative only): Suppose a private company has 10 lakh equity shares held by employees and early investors. Before the ATS, an employee looking to sell 5 000 shares might have to negotiate individually with a few known buyers, a process that could take weeks. After an ATS is operational, the same employee could place a sell order on the platform; if another participant posts a matching buy order for 5 000 shares at a mutually acceptable price, the trade could be executed within the same trading session. The price observed on the ATS would reflect the prevailing demand and supply, providing a reference point for future transactions, though it does not guarantee a specific price level.

Operational requirements for ATS platforms

• Platforms must implement real‑time trade reporting to SEBI‑approved repositories.
• They need to conduct regular audits and maintain records for at least five years.
• Access to the ATS is limited to eligible investors as defined by SEBI (e.g., qualified institutional buyers, high net worth individuals, or employees holding ESOPs, depending on the platform’s licence).
• Platforms must have clear rules on order matching, settlement, and handling of failed trades.
• Any changes to the operating rules or fee structure require prior SEBI approval.

Frequently Asked Questions

Ques : Can any investor trade on an ATS for unlisted shares?

Answer : Participation is governed by the eligibility criteria set by the ATS and approved by SEBI. Typically, platforms may allow employees with ESOPs, certain institutional investors, or high net worth individuals, but retail investors may face restrictions depending on the platform’s licence.

Ques : Does trading on an ATS guarantee a better price for my shares?

Answer : No. The ATS provides a venue for price discovery based on the orders present at a given time. The resulting price reflects prevailing demand and supply and may be higher, lower, or similar to prices negotiated privately.

Ques : What happens if I want to sell shares but there is no matching buyer on the ATS?

Answer : In the absence of a matching counter‑party, the order remains open until it is cancelled or matched later. Unlike a stock exchange with market makers, an ATS does not guarantee immediate execution.

Ques : Are the prices displayed on an ATS considered official market prices?

Answer : Prices on an ATS are indicative of transactions that occur on that platform. They are not official benchmark prices like those from a recognised stock exchange, but they can serve as a reference for private negotiations.

Ques : What safeguards exist to protect investors from fraud or manipulation on an ATS?

Answer : SEBI’s framework requires platforms to maintain surveillance systems, report suspicious transactions, and adhere to strict governance norms. Investors also have access to a grievance redressal mechanism and can approach SEBI if they suspect misconduct.

Ques : Do I need to pay any fees to use an ATS?

Answer : Yes. ATS operators may charge fees for admission, transaction processing, or other services. The fee structure must be disclosed upfront and approved by SEBI.

Ques : Can a company list its shares on an ATS and later move to a stock exchange?

Answer : An ATS is not a listing venue; it merely facilitates trading of existing shares. If a company later decides to pursue an IPO and list on a recognised exchange, it must follow the standard SEBI listing process, irrespective of any prior ATS activity.

This article was reviewed by Team BuyUnlistedShares Research Desk, whose reviewers hold NISM Series XV (Research Analyst) certification and NISM Series V-A (Mutual Fund Distributor) certification. The desk is NOT a SEBI-registered Research Analyst or Investment Adviser. Nothing in this article constitutes investment advice or a recommendation to buy, sell, hold, or avoid any security. Investments in unlisted securities carry significant liquidity, regulatory, and listing-timing risks. Consult a SEBI-registered Investment Adviser for personalized financial planning.