The Securities and Exchange Board of India (Sebi) is working on proposals to tighten the norms around the listing of small and medium enterprises (SMEs) amidst the frenzy from investors and several instances of gross violations and fraudulent practices in the segment, said Sebi whole-time member Ashwani Bhatia.
A consultation paper on the same may be floated in a few months, the official said, speaking on the sidelines of the Global Fintech Fest in Mumbai.
The market regulator may formulate norms on disclosure requirements, eligibility conditions, portions reserved for qualified institutional buyers (QIBs) and anchor investors, and audit-related scrutiny.
Several market participants have earlier called for removing the quota for QIBs and anchor investors in SME subscription. The response from institutional investors has also grown exceptionally in the SME segment.
While the approval for SME initial public offerings (IPOs) may still remain with the exchanges, the criteria for migration of listed SMEs to the mainboard may be reviewed and tightened.
The Sebi official added that the regulator wants good quality SMEs to list on the SME platforms of both the exchanges and thus the norms have been kept light-touch. He added the SME exchanges offer a good platform to lower the dependency of smaller companies on the banking ecosystem for funds and provide more transparency.
A light-touch regulator refers to lower compliance compared to those listed on the mainboard and also a lower cost for the company.
The regulator’s steps towards tightening follow recent instances of promoters of SME companies using the route to allegedly manipulate pricing through fictitious sales and revenue on the books, offload holdings at higher prices, siphon off funds, among others.
In recent orders against such firms, Sebi had noted that in such cases public shareholding had surged after the prices peaked, leaving the public shareholders at the shorter end.
While the Sebi whole-time member has cautioned auditors to be ‘good players’ in the ecosystem, he added that the regulator is also referring cases of violations by auditors to the National Financial Reporting Authority (NFRA) for further action.
The exchanges have also taken steps to filter out SMEs with poor revenues and profits with recent changes in eligibility and have also imposed a 90 per cent cap on listing gains to avoid astronomical rises.
Market participants said that the regulator wants to curb the challenges at the onset—before approvals are granted to the SMEs for listings rather than finding the violations at a later stage and coming heavily with strong strictures in orders which take longer time to process.
First Published: Aug 30 2024 | 6:51 PM IST
