NSE tightens norms for SME IPOs, listing

The National Stock Exchange (NSE) has implemented stricter eligibility criteria for small and medium enterprises (SMEs) seeking to list on its platform. Effective 1 September 2024, SMEs will be required to have a positive free cash flow to equity (FCFE) for at least two of the three preceding financial years.

The move aims to bolster investor confidence and ensure the integrity of the SME listing process, following concerns about fraudulent practices in some companies' financial statements. By introducing the FCFE requirement, the NSE seeks to filter out companies with weaker financials, thereby enhancing the overall quality of SMEs listed on its Emerge platform.

The Emerge platform, launched in 2012, has seen substantial growth, with nearly 500 SME listings as of July. However, recent volatility in some SME stock prices prompted the NSE to introduce a capping on the opening price.

While SME IPOs generally undergo less scrutiny than larger entities, both exchanges and the Securities and Exchange Board of India (SEBI) are implementing stricter regulations to protect investors. The new norms are expected to enhance the quality of SMEs listed on the NSE and provide investors with greater confidence in the platform.

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