SEBI Proposes Major SME Listing Overhaul To Widen Investor Participation
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SEBI is considering a major overhaul of India's SME IPO framework that could allow larger companies to list on SME platforms and make these shares easier for smaller investors to trade. The proposed changes could also reduce listing and underwriting costs for issuers.
India's small and medium enterprise (SME) primary market could be heading for a significant rule change. The Securities and Exchange Board of India (SEBI) is considering widening the eligibility criteria for SME listings and making it easier for smaller investors to bid for these shares, according to people familiar with the discussions.
Under the proposal, companies with a market capitalisation of as much as ₹4,000 crore could be allowed to use the SME platforms for their initial public offerings (IPOs). At present, companies valued below roughly ₹500 crore typically use these platforms.
SEBI's Primary Market Advisory Committee discussed the proposed changes on Wednesday. A consultation paper is expected to be released later, after which market participants will have an opportunity to submit their views.
Possible Changes To SME Listing Rules
One of the changes under consideration is an increase in the paid-up capital limit for SME-listed companies to ₹100 crore from ₹25 crore.
If implemented, businesses with valuations between roughly ₹1,000 crore and ₹4,000 crore could potentially have the choice of raising money through an SME platform.
Minimum Bidding Lot May Be Removed
SEBI is also considering doing away with the existing minimum application and trading size, allowing investors to bid shares in smaller quantities, boosting investor participation.
At present, investors generally have to place bids in multiples of ₹2 lakh while applying for SME IPOs, which can make SME shares inaccessible to smaller investors. For trading, each specific SME stock has a unique lot size set by the company and exchange (e.g., 1,000 or 2,000 shares per lot), and secondary market transactions must happen in these exact multiples.
Market-Making And Underwriting Rules May Change
The regulator is also looking at two other requirements that have been part of the SME framework.
Currently, market-makers are required to continuously provide buy and sell quotes for SME stocks. While the arrangement is intended to support liquidity, it can increase the cost of getting listed for companies.
Another requirement involves mandatory underwriting of SME IPOs by merchant bankers, who have to absorb the issue if investor demand falls short.
These rules can make SME listings more expensive than mainboard issues. Data from the Prime Database shows that investment banks charged an average of 5.3% of the amount raised on SME IPOs, compared with around 2.2% for mainboard offerings.
SEBI is considering removing both requirements as part of the proposed revamp. The proposals are still under discussion and could change before SEBI releases its consultation paper.
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This article is for informational purposes only and should not be considered investment advice from Kotak Neo. For compliance T&C and disclaimers, Visit www.kotakneo.com/disclaimer
Vishwa has spent 10+ years across fintech and FMCG doing what most people miss, connecting the dots, catching trends before they trend, and finding the angle nobody else thought to ask about.
At Kotak Neo, she drives content strategy for neoshorts, Kotak News Desk, and Investing Guide, turning market noise into something worth reading.
When she's not decoding markets, she trades charts for canvases, chasing art, painting, and architecture across cities she's yet to explore.
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