Mumbai: In a move that will help small companies tap India’s capital markets, the Securities and Exchange Board of India (Sebi) on Wednesday allowed the two national exchanges to set up platforms dedicated to small and medium enterprises (SMEs).
Officials at both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) confirmed that they have received in-principle approvals for setting up SME platforms.
A final approval would depend on additional conditions such as trading systems and arbitration mechanisms being put in place, and it could take several months to operationalize the platform, a BSE official said.
The SME platforms are likely to address the needs of one of the under-served areas of Indian industry, exchange officials said.
“This will give them (SMEs) access to the capital markets in an efficient manner and help them to raise capital to meet their growth opportunities,” Ravi Narain, managing director, NSE, said in an email.
Any company with an issue capital smaller than Rs 10 crore at the time it makes its initial public offer (IPO) will be allowed to list on an SME platform. The company can list on the main bourses if its issue capital crosses Rs 25 crore subsequently, according to Sebi guidelines. Issue capital is the nominal value of the total shares of a company.
The regulator, after consulting with the national exchanges, had introduced a framework for stock exchanges to set up SME platforms in 2008 and issued more detailed guidelines in May 2010.
As small enterprises typically find it difficult to get investors and raise money, the guidelines on SMEs have several relaxations compared with norms for other listed companies. For instance, unlike other publicly traded companies, a listed SME can submit only half-yearly financial results. SMEs are also exempt from giving detailed annual reports.
More importantly, merchant bankers who manage an SME listing would have to underwrite the new share offering and appoint brokers to act as market-makers for at least three years from the date of listing. These market-makers will be required to give two-way bids 75% of the time.
Market-makers are brokers who take the risk of holding a certain number of shares with themselves to facilitate trading, in return for a compensation.
Both BSE and NSE said they have met companies and investors interested in participating in the SME platforms.
Earlier attempts at setting up stock exchanges in India for small companies haven’t been successful. OTC Exchange of India, started in 1990 and modelled on the over-the-counter market in the US, has just 115 firms listed in it, as per information on its website.