The Securities and Exchange Board of India (Sebi) today issued norms-legal framework for setting up separate platform/stock exchange for small and medium enterprises (SME). It has set minimum net worth criteria of Rs 100 crore for entity wanting to set up an exchange for SMEs.
Sebi has said that such entities should be corporatized since inception and it should be demutualised within 1-2 years from the date of trading. This means that the promoter of the exchange should dilute 51 per cent equity in specified period.
Other norms prescribed by the regulator are having nation wide trading terminals, an online screen-based trading system and suitable business continuity plan including a disaster recovery site.
These conditions make it virtually impossible for regional exchanges to set up SME exchange independently. Regional exchanges that have demutualised like Delhi stock exchange don’t have nationwide terminals or reach. Financial Technology (FT) group has picked up five per cent stake in the DSE, while BSE holds 5 per cent equity in Calcutta stock exchange (CSE).
Both the exchanges in past have declared their intentions to convert themselves in to an exchange for SMEs. DSE and CSE can set up such platform with the license to use network of their partners only.
FT group company MCX has nationwide network, while their subsidiary for currency futures also has such network. Sebi has said in the legal framework released today that the entities should have online surveillance system also.
FT group and existing national exchanges NSE and BSE have expressed their willingness to set up platform for SMEs. Since they have ready infrastructure and other capabilities as required by the regulator, they may move faster then others.
The exchange for SMEs will be different from existing stock exchanges in terms of companies raising capital and investors investing money in such companies. Sebi has fixed the minimum trading lot of Rs 1 lakh and trading system may either be order driven or quote driven. The settlement may either be on rolling, trade for trade or call auction basis.
The clearing function of the exchange may be performed by a clearing house, said Sebi in a framework released today.
A separate exchange for SMEs was advocated since long and in the last board meeting, Sebi has cleared the proposal to allow exchange for SMEs. Sebi has asked exchange to get registered under the SCR Act and even their members should get registered with Sebi. The exchange will help small and medium companies raising capital, especially when such companies don’t have required track record.
Minimum Rs 1 lakh of investment norm will ensure investors having proper understanding about the risk in such investment will invest and SMEs having post issue capital of Rs 25 crore will qualify for raising capital through such specialized platforms.
