Some change to November draft, based on feedback; no vetting of offer documents.
The Securities and Exchange Board of India (Sebi) will soon announce guidelines for listing small and medium enterprises (SMEs). The move is expected to set the ball rolling for a separate exchange or a platform for SMEs.
More than four months have passed since Sebi first announced draft guidelines for a separate exchange or a platform for SMEs.
“We are in the process of amending the guidelines and will notify these shortly,” said Sebi Chairman CB Bhave.
Those familiar with the development said the final guidelines would be somewhat different from the draft norms as they would incorporate feedback from various market participants.
“The guidelines have been finalised internally. While the basic structure will be what was announced last year, there will be some tinkering based on feedback from industry. There were quite a few meetings with industry participants, including stock exchanges, investment bankers and investor associations,” said a person familiar with the development.
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The draft, released last November, said merchant bankers should perform market-making activities (prepared to both buy and sell shares or any other security whether or not there are customer orders) for three years. This was also one of the main concerns raised by the investment banking community. It was argued that small bankers did not have access to sufficient funds to do market-making for three years. Industry sources say this norm will be slightly modified in the final guidelines. “It was clarified in the discussions that it need not be a merchant banker. A banker can appoint a broker or a group of brokers on its behalf,” a source said on condition of anonymity. A merchant banker, rather than blocking his own money, could appoint someone for a fee, he added. There are, however, concerns related to liquidity, as many wonder if there will be enough floating stock for people trade on such a platform.
Sebi would also do away with the process of vetting offer documents for listing on the SME segment. In other words, an investment banker has to do the due diligence itself and file the prospectus with the market regulator and the exchange. Sebi will not issue any observation. The company can hit the market any time after filing the offer document. “Smaller entities that want to time the market will come through this route as vetting the document has been done away with,” said the head of a mid-sized investment banking firm who did not wish to be named.
A limit of Rs 25 crore of paid-up capital would be fixed for a company intending to list on the segment. Companies listed on the segment would be compulsorily shifted to the main board of the exchange after exceeding the Rs 25 crore post-issue paid-up capital limit. SMEs would be required to present financial numbers on a half-yearly basis, instead of quarterly. The minimum initial public offer size has been pegged at Rs 1 lakh.