SEBI Readies Second Surveillance System to Delist Fraudulent Listed Companies and Weed Out Unfit IPOs — October 3, 2026

The Securities and Exchange Board of India (SEBI) is developing a second surveillance framework specifically designed to track down and eliminate fraudulent and non-compliant companies from Indian stock exchanges. Speaking at an industry event organised by the Commodity Participants Association of India (CPAI) in New Delhi, SEBI Whole-Time Member Kamlesh Varshney revealed that the blueprint for this new monitoring architecture is nearly complete.

The primary objective of the initiative is to identify "bad elements" lurking within the universe of listed entities and systematically initiate procedures to delist them, ensuring retail investors are insulated from chronic corporate malpractice.

Expanding Beyond Trade Surveillance

SEBI already runs advanced real-time surveillance engines that monitor tick-by-tick market activity, high-frequency trading patterns, front-running, and share-price manipulation across stock exchanges. However, the regulator is now moving to establish a complementary layer focused directly on corporate balance sheets, operational filings, and disclosure integrity.

"While we have a surveillance system where, on the live data, we catch manipulators, SEBI has been doing very well in that," Varshney stated. "We have almost completed a blueprint of our second surveillance system, which will identify these bad elements in the capital market amongst the listed companies, so that they can be delisted."

By utilizing artificial intelligence and deep data diagnostics, the upcoming platform will enable the market watchdog to review quarterly filings and corporate governance metrics autonomously, identifying red flags and financial misstatements proactively rather than waiting for formal whistleblowers or retail complaints.

Scrutiny on Small IPOs and SME Listings

A central pillar of the regulator's intensified vigilance is the primary market, specifically the rapid influx of small initial public offerings (IPOs) and small-and-medium enterprise (SME) listings. Over the past two years, Indian markets have witnessed an unprecedented boom in micro-cap and SME public issues, many of which attracted enormous retail oversubscriptions despite questionable corporate fundamentals and dubious promoter track records.

Varshney cautioned that several entities tapping the public markets are unsuitable for capital raising and pose substantial risks to retail investors.

Key areas of regulatory concern highlighted by SEBI include:

• Companies launching small public offerings without sustainable business models or adequate disclosure standards.
• Instances where retail market participants are lured into speculative micro-cap issues that later result in severe capital erosion.
• The critical requirement for pre-listing corporate governance compliance, particularly among SME promoters seeking public equity.

"We have seen a lot of small IPO issues, which are not really meant to be there in the capital market, and they create losses to retail investors," Varshney pointed out. "So, we have to identify those players also, and SEBI is working on that as well."

Preserving Retail Investor Trust

India’s equity ecosystem has undergone explosive retail expansion, with the total number of demat accounts surging to historic highs. However, regulatory authorities have repeatedly cautioned that democratisation must go hand-in-hand with investor safety.

Through investor education programmes such as Project Jagrook and continuous technological modernization, SEBI intends to clean up market pipelines. Varshney emphasized that efforts to expand public market participation can only remain viable if fraudulent operators and shell entities are methodically purged from bourses before they cause systemic damage.

Tags: SEBI Kamlesh Varshney BSE NSE SME IPO CPAI