Coupon Accepted Successfully!

Institutional Trading Platform (ITP)

(and its utility for unlisted companies, SMEs and start-ups)


After the SME Platform, the SEBI introduced another interesting measure (called the Institutional Trading Platform) to make it easier for startups to offer liquidity to investors. Note that investments in shares of unlisted companies are highly illiquid and it is extremely difficult to find a buyer for the investment.  One of the incentives that a startup can offer a potential investor is the possibility of a relatively stress-free exit. As discussed earlier, an investor’s most desirable exit method is an initial public offer (IPO) – the sooner the likelihood of the IPO, the more ready and willing an investor will be to invest. However, a successful IPO depends not only on the company’s performance but a number of external market factors as well, so investors typically incorporate alternate mechanisms such as put options, strategic sale, drag-along rights or buy-back provisions (these have been discussed earlier) as well in investment documentation.

Investor appetite for ordinary IPOs was extremely low and several companies had not been able to garner requisite investor support for IPOs. With a view to encouraging SMEs to list, SEBI had already allowed exchanges to create a dedicated platform with reduced compliance requirements in 2012 – however, this platform took also some time to gain popularity. In 2012 JustDial had to defer its IPO initially, and in 2013 it was Flipkart which decided to raise further rounds of private equity at the last moment, instead of opting for an IPO, since market appetite for IPOs was low.

Therefore, in October 2013, SEBI added a new chapter in the Issue of Capital and Disclosure Requirements Regulations (ICDR) (Chapter XC) permitting small and medium enterprises (SMEs) to list existing shares on a new segment of the SME exchange, called the Institutional Trading Platform (ITP). This was done with a view to provide investors (especially angels) an opportunity to exit, as investor appetite for IPOs was very low.



Very few investors stay completely invested in the company until it undertakes an IPO, most investors partially keep diluting their stake and sell off their securities (at least to some extent) in subsequent rounds, to new incoming investors. For example, an angel investor who makes an investment during the early stages of the company may not remain fully invested until the company undertakes an IPO, and would like to sell at least a part of its investment (and make a profit, if it has the opportunity to do so), when the raises more money in further investment ‘rounds’ from venture capitalists or private equity investors to fund its activities. Investors will always prefer if additional regulatory or contractual mechanisms are incorporated to provide liquidity to their investment or avenues for exit.


Note that the primary purpose of the ITP was to enable companies to offer existing investors (such as angel investors and venture capitalists) an exit opportunity, at a time when investor appetite for IPOs was poor and the SME exchange was just starting to take off, by offering to sell their shares to other sophisticated investors. The objectives of listing on the main board, on the other hand, are to enable the general public to trade in the company.

Since ordinary listing procedures are not applicable to companies listed on the ITP, these companies are not allowed to issue shares to the public through initial public offer (IPOs) or follow-on public offers (FPOs). However, they can raise money from existing shareholders (these are called ‘rights’ issues) or from issuing shares to a limited group of specifically identified entities (these are called ‘private placements’), if they obtain in-principle approval of the stock exchange and a special resolution of the shareholders, as explained in the annex below.

Since the purpose of the platform is to afford professional investors (that is, financially literate and sophisticated investors who do this on a regular basis) an opportunity to exit, only companies which have a prior investment of at least INR 50 lakhs from specific kinds of investors (such as angel investors or venture capitalists registered with the SEBI, public financial institutions or qualified institutional buyers, etc.) can list on the platform. For a complete list of the categories, see the segments that follow.

Trading has only started from February 2014 and hence limited data is available – as of April - May 2014, 15 companies have filed their information memorandum.

Minimum trading lot on the ITP platform must be INR 10 lakh – this is a huge amount and impacts the liquidity of the shares. It will be extremely difficult to identify buyers who are willing to invest such huge amounts – these are going to be highly sophisticated investors. In comparison, the SME Exchange has a trading lot size of INR 1 lakh. For companies on the main board, even 1 share can be sold – which makes the main board extremely easy to trade on. 

The promoters of the company must hold not less than 20 percent of the post listing capital and such stake holdings of the promoters cannot be diluted (that is, promoter shareholding is locked-in) for a period of three years from the date of listing.

How are companies listed on the ITP platform different from those listed on the SME Exchange or the main board?

Unlike companies which undertake an IPO (through the main board or the SME platform), those listed on the ITP cannot raise money from the public – the purpose of the platform was to enable existing investors to sell off their shares to willing buyers, and not raising of capital from public. However, companies can raise capital through other mechanisms (which are in any case available to unlisted or private companies – such as by issuing shares to existing shareholders (rights issue) or by private issuances to specifically identified buyers (called private placements).

Ordinarily, listed companies need to ensure that a minimum of 25 percent of their shareholders are classified as ‘public’ shareholders, that is, they are not the promoters /founders. The requirement to have minimum 25 percent of shareholders does not apply to companies listed on the ITP.

How can a company which is listed on the ITP raise money from the public?

In order to raise money from the public, a company listed on the ITP will have to be ‘unlisted’ from the platform and migrated to the SME exchange or the main board. The word ‘unlist’ is being used to differentiate the process from the delisting process that is typically followed when a company’s shares are taken off the stock exchange. Instead of the ordinary delisting process, a special process has been prescribed for ‘unlisting’ from the ITP.

This unlisting process requires passing specific kind of resolution by postal ballot - 90 percent of total votes and majority of non-promoter votes must be in favour of unlisting for the motion to sail through. Permission of the stock exchange is also necessary. This can be an expedited process, although the stock exchange has the power to grant up to 18 months of time.

In comparison, the ordinary delisting process requires shareholders to be given an exit opportunity, which is not required for delisting from the ITP. Further, a special resolution by postal ballot must be passed (i.e. with 75 percent votes), with the number of public shareholders voting in favour being double of those who vote against it must also be passed.


A company has 1000 shareholders, of whom 800 qualify as public shareholders. There are no other categories of shareholders. Each shareholder has 1 vote. What procedure would it follow to delist from a) the main board or SME platform, b) the institutional trading platform. 


a) For delisting from the main board or SME platform, shareholders must be given an exit opportunity.  Apart from that, a resolution in favour of delisting with a total of 750 votes, which has 534 non-promoter votes (267 x 2) will be important.

b) For delisting from the ITP, a total of 900 votes in favour of the delisting (of which at least 401 of 800 votes from the non-promoter category are in favour of delisting) must be passed. No exit opportunity would be required for existing shareholders.

For delisting on the ITP it will have to call a meeting. Imagine all the shareholders turn up. 




Can a company be required to mandatorily delist from the ITP platform?



In certain scenarios (for example, if a company grows too large in operations or in capital), a company will have to compulsorily un-list itself from the ITP. These situations are described below:
  • crosses a paid up capital of INR 25 crore rupees (this is also the maximum limit for migration from SME Exchange to the main board),
  • completes 10 years of being listed on the platform
  • has a turnover of INR 300 crores
  • has a market capitalization of INR 500 crores.


Relationship with investment documentation?

How does the emergence of new exit options impact investment documentation such as shareholders agreements? Will investors accept exit opportunities which emerge through listing on the SME platform or the ITP (also known as ‘direct listing’)?

Investors typically have a say on most major decisions of the company – while every investor has the dream that his or her investee company will undertake a successful IPO, the reality is quite different. Few companies are able to successfully undertake an IPO. In other cases, investors may prefer alternate exit processes which provide additional avenues to avail of liquidity. Hence, an SME listing or ITP listing may be desirable for investor to give them additional comfort, especially when the company is under pressure to IPO.

At a practical level, with the transaction lot size being so high (INR 1 lakh on the SME platform and INR 10 lakh on the ITP), these may simply be alternate ways of consummating strategic sales (this is a standard exit mechanism), rather than new exit mechanisms themselves. However, if an investor does not want the company to list or does not intend to treat this listing as satisfaction of the obligation to undertake an IPO, it may exclude this through the shareholders agreement. The investor is also likely to be in a position to veto the decision for listing on the SME exchange or for direct listing on ITP platform as typically investors’ consent on the board or the shareholder level is required to undertake these actions. 


Test Your Skills Now!
Take a Quiz now
Reviewer Name