Stock exchanges eyeing stricter norms for SME IPOs amid rising euphoria

Amid the rising debates over the SME market, stock exchanges are considering tighter norms, suggest some media reports. The norms may include a minimum threshold for the SME IPOs, in such a manner, that only sizable serious players tap the capital market route and non-serious players do not use the platform.
 

Currently, there is no minimum issue size for SME issues. But exchanges may consider a minimum limit for SME IPOs around Rs 30-50 crore, depending on the exchange's own policy and data of past listings and subscriptions. Exchanges are looking to make the approval process stricter, said the media report from Zee Business.

Various categories of investors are eagerly participating in the SME rally. However, because these small companies can be easily controlled by large investors, there are significant risks of price manipulation. The stringent oversight of exchanges is essential to ensure the long-term survival of the SME exchange, said Kresha Gupta , Director, StepTrade Share Services.
 

"Without such stringent measures, retail investors are likely to lose money. We should view the stricter norms in SME exchange IPOs not as the end of the SME rally, but as a positive development.  These regulations will help the market survive longer, keep retail investors engaged, and ensure the market grows at a steady, sustainable pace," she said.
 

Retail investors, attracted by potentially high returns, might be more susceptible to such malpractices. Authorities want to safeguard their interests. Overall, the stricter stance aims to protect investors and ensure more transparency on the SME listing platform, eventually improving  the overall health and reputation of the SME market in the long run, he said.
 

Exchanges are planning tightening of measures and there is no diktat from the capital market regulator Sebi. However, the market's watchdog had raised the concerns in the recent past. This was seen as a  big hint for exchanges to ensure that issues are not manipulated.
 

SME IPOs have been approved by the exchanges and Sebi does not give direct approval to them. However, huge subscriptions and the high listing gains of SME issues drew the attention of various market experts, including Sebi, which flagged the concerns of stock manipulation and inflated subscription figures.
 

The idea is to bring SME issues to par with mainboard issues in terms of disclosures to safeguard interest of investors. The merchant bankers of SME issues may face more queries from exchanges. Objects of the issue and financials of the SME companies coming for fundraising will be specially scrutinised. Issuers may also be asked to give more upfront disclosures.
 

Exchanges and regulators are tightening the norms on the SME listing platform in India to avoid the misuse of the platform by some players. It has observed instances of companies diverting raised funds, manipulating financial statements, and misrepresenting facts in offer documents, said Amit Goel, Co-Founder & Chief Global Strategist at Pace 360.
 

Market regulator Sebi is already investigating the pattern of a few SME IPOs, and the role of merchant bankers and intermediaries involved. The regulator is probing the whole process. on the back of astounding exuberance created for SME IPOs and possible misuse of the SME IPO route.
 

As many as 190 SME companies raised a record-breaking Rs 5,579 crore through SME platforms in the financial year 2023-24, the data suggests. In the previous financial year (2022-23) about 125 SME companies raised Rs 2,235 crore from the SME IPO route.