Sebi tightens regulations for SME listing, widens UPSI definition

Regulator also overhauls regulations governing investment bankers

The Securities and Exchange Board of India (Sebi) on Wednesday approved tighter regulations for listing of small and medium enterprises (SMEs), broadened the scope of price-sensitive information, and overhauled regulations governing investment bankers.

 

Amid investor frenzy in SME fundraising, the market regulator has decided to raise the eligibility norms to ensure only companies with sound track records raise money from the public and get listed.

 

“An issuer shall make an IPO, only if the issuer has an operating profit (earnings before interest, depreciation, and tax) of Rs 1 crore from operations for any 2 out of 3 previous financial years at the time of filing of its draft red herring prospectus (DRHP),” said Sebi.

 

Sebi has also limited the offer for sale (OFS) size by selling shareholders to 20 per cent of the total issue size, while a selling shareholder cannot sell more than 50 per cent of their holdings. Sebi will also be extending the related party norms and regulations on promoter lock-in to SMEs.

 

Sebi has decided to widen the definition of unpublished price-sensitive information under the Prohibition of Insider Trading Regulations (PIT) along with the introduction of threshold limits for identification of events as UPSI.

 

“For events emanating from outside the company, flexibility has been provided to make entries in the structured digital database on a deferred basis, within two days, as well as to not have mandatory trading window closure,” said Sebi.

 

Another key decision has been the review of merchant banker (MB) regulations on their eligibility, activities they can undertake, and revision in net worth including liquid net worth criteria.

 

“Activities other than permitted activities by MB shall be hived off to a separate legal entity with a separate brand name, within a period of two years. MBs which have to hive off activities and the hived off entity, shall abide by such code of conduct as may be specified by Sebi from time to time,” said Sebi.

 

The regulator has also prescribed an underwriting limit for merchant bankers at 20 times of liquid net worth. Other key decisions include ease of norms on Business Responsibility and Sustainability Report (ESG-related disclosures), REITs and InvITs, and debenture trustee regulations.

 

Sebi has also eased skin-in-the-game norms for mutual fund employees.