Sebi to review SME norms

Ashish Rukhaiyar
Mumbai March 2, 2011
Investment bankers express concern over market making, trading lot size.

In a clear indication that the Securities and Exchange Board of India (Sebi) wants to launch a separate trading platform for small and medium enterprises (SMEs) as early as possible, the regulator has decided to meet investment bankers to address some of the areas of concern.

It is believed Sebi will tweak some of the guidelines notified for the SME platform to make the segment attractive, especially in the initial period. The regulator is also looking at introducing 15-minute call auction windows at regular intervals through the trading session.

According to persons familiar with the development, the bankers have expressed apprehensions over two key features of regulatory guidelines — compulsory market making for three years and a minimum trading lot size of Rs 100,000. Investment bankers want the regulator to bring down both.

Incidentally, bankers have already discussed these issues with stock exchange representatives in a series of recent meetings.

“We discussed our issues with exchange officials, who have forwarded them to the regulator,” said an investment banker who was part of the discussions. “While there are practical difficulties in three years of market making, a minimum trading lot size of Rs 100,000 will put most of the retail investors out of this segment. This will impact liquidity,” he explained on condition of anonymity.

Representatives of the umbrella body of investment bankers — Association of Merchant Bankers of India (AMBI) — were also part of the discussions.

Another person privy to the developments said while there are some other minor concern areas too, market making has emerged as the key issue.

“There are various views on the role of stock exchanges to popularise this whole new segment,” said a person who wished not to be named. “Enough information needs to be disseminated through their respective websites. Everything else, however, has been dwarfed by the discussions related to market making and (trading) lot size,” he added.

A separate trading platform for SMEs has been on the radar for long, with the initial draft regulations announced in November 2009. The norms were later notified by the regulator in May 2010. The regulator has fixed an after-issue upper limit of Rs 25 crore capital at face value for a company that intends to list in the segment. If a company’s after-issue face value capital is less than Rs 25 crore, a further issue of shares will be allowed, provided the new capital does not exceed Rs 25 crore.

Further, companies listed in the segment will be compulsorily shifted to the main board of the exchange after exceeding the Rs 25-crore after-issue paid-up capital limit. While the issue also needs to be 100 per cent underwritten, investment bankers will have to underwrite 15 per cent of the issue in their own account. Bankers who have the responsibility of market making may be represented on the board of the company, subject to an agreement with the issuer.