Securities and Exchange Board of India (Sebi) is considering a proposal to tweak rules for market making in SME exchanges.
According to the framework, market making is compulsory for three years for companies listing on these exchanges to provide an exit to investors. But, the exchanges have put forward certain practical difficulties and requested certain changes in the rules. Though the regulator is not too keen to relax the timeline of three years, it is considering other proposals, officials in the know said.
"There is a practical possibility that the market maker ends up with the entire floating stock in the market. Also, at the other end he may exhaust the entire stock in his hand. In both situations, he may no longer be able to offer two-way quotes. So, we have asked the regulator to put a cap and floor on the floating stock that can be held by the exchange," a senior exchange official told Business Standard. Also, in situations where a venture capital investor takes a considerable stake in the Initial Public Offering (IPO), the floating stock will be reduced further, cramping the room for the market makers.
“These practical issues we have put up before Sebi,” the official said. Sebi has been very sensitive to the teething troubles of this platform, officials said. It has recently exempted the first SME IPO from the recent rule changes on market lots. The IPO of BCB Finance has opened on Thursday on the BSE SME platform.
Uttam Bagri,promoter of BCB Finance said, "The change of rule on market lots came just days before our issue was about to open. It would have made things difficult for us. But the exchange took up the matter with the regulator and they have clarified that the change would not be applicable to us."
The change on market lots would be applicable to future issues, the regulator is said to have clarified. BCB Finance IPO proposes to raise Rs 8.85 crore diluting 30 per cent. The issue closes on Monday.
The BSE SME exchange is expected to formally launch with the listing of BCB Finance in early March.