SEBI proposes a seperate equity exchange for SMEs

I have been reading about this in press for a long time that SEBI is proposing to launch a equity exchange for SMEs. Finally, SEBI has put a discussion paper and has invited comments.

It is a decent paper and covers the issues in a very comprehensive manner. It covers the need for the exchange and also points to the risks. Like these companies are more risky than those on the larger exchanges and thus might not be prudent for small retail investors. So it says some limits have to be put and only  those retail investors who can buy Rs 5 lakhs of securities in one time (primary and secondary) might be allowed. (Manas Chakravarty and Mobis Philipose of Mint  criticise this move).

But still, I hope the lessons from OTCEIare well learnt. Just because we need an exchange for SME alone will not suffice. There has to be a lot of push to get it going.  

I had done some research with colleagues on the topic (the paper is here, a more refined version by one of my colleagues Ayan Banerjee is here) and was amazed to see how this exchange has been ignored all along. It was launched with a big fanfare and had very similar backers as NSE. It was based on a state of the art technology with VSATs, etc. After few months, liquidity wasn’t there in many scrips and  continued to worsen. It was simply allowed to die and is a big puzzle why it didn’t take off.

Overall, I hope equity funding in SME picks up. One of my colleagues keeps lamenting that most PE/VC funds in India are not interested in SME sector. The size of the companies they invest in is much larger than the size of the average Indian SME. Plus there is heavy bias for IT/Software industry and other sectors are not adequately covered.

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5 Responses to “SEBI proposes a seperate equity exchange for SMEs”

  1. phil Says:

    Amol, thank you for this post. I couldn’t agree more.

    Are you aware of any PE/venture funds in India that focus on SMEs? I’ve heard of the new Soros/Omidyar Fund and also Acumen but not much else.

    http://www.livemint.com/2008/02/20234201/Soros-Omidyar-Google-create.html

  2. Framework for SME Exchange – IndiaCorpLaw Says:

    […] After making a proposal nearly two years ago for the establishment of a separate stock exchange for small and medium enterprises (SMEs) to enable them to access the capital markets, SEBI has recently established the legal framework for achieving the same either through promotion of dedicated exchanges and/or dedicated platforms of the exchanges for listing and trading of securities issued by SME. SEBI has taken the following steps: 1. Introduced Chapter XA in the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 which deals with issue of specified securities by SMEs; 2. Prescribed a format of the listing agreement to be entered into between the SME issuer and the concerned stock exchange. As the SEBI circular issuing the model listing agreement states, there are certain relaxations provided to SME issuers in comparison with main board listed companies, which are as follows: a. Companies listed on the SME exchange may send to their shareholders, a statement containing the salient features of all the documents, as prescribed in sub-clause (iv) of clause (b) of proviso to section 219 of the Companies Act, 1956, instead of sending a full Annual Report; b. Periodical financial results may be submitted on “half yearly basis”, instead of “quarterly basis” and c. SMEs need not publish their financial results, as required in the Main Board and can make it available on their website. 3. Amended the policy framework for SME listing through a circular that is in addition to the framework previously announced by SEBI. As I had previously noted: Overall, this is a welcome move as it could potentially create financing avenues for SMEs and also a separate market for investors keen to target that segment of the economy. This is also in tune with the international trend as we have seen earlier. However, it also calls for some caution and pessimism, particularly in view of past attempts which have failed. The prime attempt relates to the establishment of the OTC Exchange of India (OTCEI), which has not garnered the attention of the SME segment as it was expected to. Recent reports and commentaries have pointed to the need to ensure that this is not repeated with the current attempt (see, LiveMint and Mostly Economics blog). […]

  3. Enabling SMEs Access the Capital Markets – IndiaCorpLaw Says:

    […] Overall, this is a welcome move as it could potentially create financing avenues for SMEs and also a separate market for investors keen to target that segment of the economy. This is also in tune with the international trend as we have seen earlier. However, it also calls for some caution and pessimism, particularly in view of past attempts which have failed. The prime attempt relates to the establishment of the OTC Exchange of India (OTCEI), which has not garnered the attention of the SME segment as it was expected to. Recent reports and commentaries have pointed to the need to ensure that this is not repeated with the current attempt (see, LiveMint and Mostly Economics blog). […]

  4. Framework for SME Exchange – IndiaCorpLaw Says:

    […] pointed to the need to ensure that this is not repeated with the current attempt (see, LiveMint and Mostly Economics blog). From a legal and regulatory standpoint, it is likely to be more difficult to control the […]

  5. Enabling SMEs Access the Capital Markets – IndiaCorpLaw Says:

    […] pointed to the need to ensure that this is not repeated with the current attempt (see, LiveMint and Mostly Economics blog).From a legal and regulatory standpoint, it is likely to be more difficult to control the […]

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