A month after the Securities and Exchange Board of India (Sebi) announced guidelines for SME exchanges, the National Stock Exchange (NSE) has sought feedback from market participants. It recently met merchant bankers and brokers to discuss the broad guidelines announced by Sebi.
Some of the recommendations include non-applicability of the takeover code on SMEs listing on the platform and exempting investors trading on the platform from short-term capital gains tax.
Sources said the NSE was also in talks with venture capital funds, high net worth individuals (HNIs) and qualified institutional buyers (QIBs) to act as nominated investors. It has already discussed issues related to liquidity and market-making margins required for investing in these companies. “It may take six months for the launch. The NSE will not do anything in a hurry because of the failure of similar platforms that were launched earlier”, said a source close to the development
Small Industries Development Bank of India, which focusses exclusively on SMEs, is also looking to partner with the NSE. Rakesh Rewari, deputy managing director, SIDBI, said, “We have started the preliminary work and are looking at the guidelines. We are in discussions with established exchanges on the modalities of the partnership. But things will be clear only after two-three months”.
The OTC Exchange of India (OTCEI), set up in 1990, was the first exchange for small companies. However, it failed to take off. Some regional stock exchanges were meant to cater to SMEs, but could not grow. Then came the Indo-next platform on the BSE. This was also not very successful.
To address the special needs of SMEs, Sebi came up with fresh guidelines recently. Among the major initiatives, Sebi has proposed to exempt companies listed on SME exchanges from eligibility norms for initial public offers (IPOs). For listing, SMEs should have a paid-up capital of not more than Rs 25 crore. The minimum IPO application size has been kept at Rs 1 lakh to ensure entry of only informed and financially sound investors.
Merchant bankers have been given the responsibility of market making (for a minimum period of three years) and underwriting the issue. Under the arrangement, all the shares being bought and sold as part of market making will ultimately get transferred to the disclosed nominated investor, which could be a venture capital fund, an HNI or a QIB with whom the merchant banker has a contractual agreement.
Relaxing the guidelines for submitting financial results by SMEs, Sebi has allowed them to do so on a half-yearly basis.