Suggestions on SME Platform of the Stock Exchanges

BSE and NSE started their SME platforms in the year 2012. As on date today, a total of 89 companies are listed on these platforms, with 83 companies being listed on BSE platform (BSE SME) and 6 companies on NSE’s platform (Emerge). The total amount of capital raised is Rs. 785 crores as on 31^st December 2014. The total market capitalization hovers around Rs. 9,000 crores.

SME listing has an important role to play with regards to financing small & medium businesses in the country. As few years have already passed since this platform was made operational, it is probably the right time to suggest some changes based on the experience:

Suggestions

1.      To lower the minimum trading lot size of Rs.1 lakh post listing as we feel that the minimum lot size of Rs.1 lakh could deter many genuine investors.

2.      To review the minimum 25% equity dilution, that is required at the time of listing. At time SMEs do not want to test the waters with a high amount of dilution. A policy reform required is to dilute the norm of minimum public shareholding from 25% to 10% for SMEs.

3.      The authorities should popularize the concept of ‘priority investing’ to improve the financial conditions of SMEs in India. The regulator should mandate Institutional Investors to invest in SMEs. Currently only institutional investors like mutual funds, private equity and venture funds are allowed to invest and trade in companies listed on the SME platforms. Definition of nominated investors should be widened to include wealthy individuals, non-institutional investors, corporate bodies.

4.      SEBI should encourage dual listing of SMEs on both BSE and NSE’s SME platforms.

5.      The existing requirement of market making for a period of 3 years should be reduced to maximum one year.

6.      Lack of consistency in the definition of MSME sector continues here as well. For a company to be eligible to be listed on the SME platform the minimum post issue paid up capital should be 1 cr and the maximum should be 25 cr. This minimum post paid capital be reduced.

7.      Institutional support from Govt. /SEBI like creation of a specialized agency that helps the SMEs list on the platforms is required. Most of the SMEs are not too well acquainted with the way in which stocks are listed and the stock market functions. BSE and NSE have been organizing seminars/road shows to spread awareness about the availability of the platform and the benefits of listing but the cost of listing and complying with continuing obligation can prove to be too heavy for the smaller companies. This specialized agency should provide merchant banking facilities and compliance with continuing obligation for a minimal charge.

8.      A uniform format of information should be developed preferably by the Institute of Chartered Accountants of India or SEBI so that the information becomes comparable. At present no such format is available

9.      A separates index needs to developed for SME exchange.