Context:
In a significant regulatory development, the Securities and Exchange Board of India (SEBI) has approved a proposal to pilot fractional share trading through its innovation sandbox, marking a possible shift in India’s equity trading framework.
Key Highlights:
- First-of-its-kind approval:
- Bengaluru-based startup Xaults has become the first company allowed to test fractional shares in SEBI’s innovation sandbox.
- Fractional shares defined:
- Fractional shares represent portions of a whole share of a company’s stock or an exchange-traded fund (ETF). Instead of purchasing an entire share, investors can buy a fraction, allowing them to invest amounts that align with their financial goals.
- These are partial units of a stock, enabling small-ticket investments in expensive shares—a model already popular in the United States.
- Custody framework key to approval:
- Xaults proposed that fractional shares be held at the depository level, not broker level.
- This ensures ownership remains with the investor, enabling brokers to offer fractional shares while maintaining transparency and legal clarity.
- Next steps:
- Xaults will demonstrate use-cases to SEBI and market participants over 3–4 months.
- Live testing will commence only if SEBI moves it into the regulatory sandbox phase after evaluation.
Significance
This pilot could democratize stock market access for small investors in India by enabling them to invest in high-value stocks without buying full units, potentially boosting retail participation in capital markets.
