SME Exchange

SMEs exchange

The SME Exchange, often referred to as the SME Platform or SME Segment, is a specialized trading platform within stock exchanges that caters specifically to Small and Medium Enterprises (SMEs). In the context of India, prominent examples include the BSE SME and NSE Emerge platforms.

In India, there are two main SME exchanges that cater specifically to Small and Medium Enterprises (SMEs). These exchanges provide a dedicated platform for SMEs to list their shares, raise capital, and participate in the stock market. The two prominent SME exchanges in India are:

  1. BSE SME (Bombay Stock Exchange – SME):

    • Key Features:
  2. Part of the Bombay Stock Exchange (BSE), one of the oldest and leading stock exchanges in India.
  3. Specialized platform exclusively designed for SMEs.
  4. Streamlined listing process to make it more accessible for SMEs.
  5. Enables SMEs to raise capital through Initial Public Offerings (IPOs).
  6. Regulatory oversight by the Securities and Exchange Board of India (SEBI).
  8. NSE Emerge (National Stock Exchange – Emerge):

    • Key Features:
      • Operated by the National Stock Exchange of India (NSE), one of the largest stock exchanges in the country.
      • Dedicated platform for SMEs seeking to go public.
      • Focuses on providing a conducive environment for SMEs to list and trade their shares.
      • Simplified listing process compared to the main stock exchange.
      • Subject to regulatory compliance under SEBI’s guidelines.

Eligibility Criteria for Listing on SME Exchanges

  1. Net Tangible Assets: SMEs must have net tangible assets equal to or more than ₹3 crore.

  2. Track Record: The SME should demonstrate an operational track record of at least three years.

  3. Net Worth: The net worth of the SME must be ₹3 crore or more.

  4. Profitability: The SME should have positive profits in at least two out of the preceding three years.

  5. Positive Cash Accruals: The SME must show positive cash accruals from operating activities in the audited financial statements.

  6. Minimum Issue Size: SMEs need to issue a minimum of ₹2 crore worth of securities.

  7. Promoters’ Contribution: Promoters are required to contribute at least 25% of the post-issue capital.

  8. Regulatory Compliance: SMEs must be compliant with SEBI regulations and not classified as wilful defaulters.

  9. Audited Financial Statements: Submission of audited financial statements for the last three years is mandatory.

  10. No Wilful Defaulters: SMEs and their promoters should not be classified as wilful defaulters by any financial institution or lender.

  11. Promoters’ Lock-in: Promoters’ shares are subject to a lock-in period of three years from the date of listing.

  12. Minimum Public Shareholding: SMEs must maintain a minimum public shareholding of 25% post-listing.

  13. Appointment of Intermediaries: SMEs must appoint a lead manager, registrar, and legal advisors for the listing process.

  14. Use of Proceeds: The SME should specify the intended use of funds raised through the IPO in the Offer Document.

  15. Compliance with SME Exchange Guidelines: SMEs must adhere to the specific listing guidelines and regulations of the respective SME exchange.

Exceptions from Eligibilty Norms

Certain categories may be eligible for exceptions to standard IPO eligibility norms in India:

  1. Startups and Innovators:

    • Innovators Growth Platform (IGP) offers tailored norms for startups.
  2. Sector-Specific Relaxations:

    • Certain industries may receive relaxations to encourage listings.
  3. Companies in CIRP:

    • Firms undergoing insolvency resolution may get specific relaxations.
  4. DVR Issuers:

    • Companies with Differential Voting Rights may have different eligibility criteria.
  5. ITP-Listed Companies:

    • Companies listed on Institutional Trading Platforms may have eased norms when moving to the main board.
  6. SMEs:

    • SMEs listing on SME Exchanges have separate, often more lenient, eligibility criteria.

While these categories may have relaxed norms, regulatory authorities maintain basic investor protection and market integrity principles. Companies should review specific SEBI guidelines for their eligibility criteria.

Benefits of SME Exchange:

  1. Access to Capital: SMEs can raise funds for expansion and operations.

  2. Visibility and Credibility: Enhanced brand recognition and market credibility.

  3. Market Liquidity: Provides a platform for easy buying and selling of shares.

  4. Investor Diversification: Attracts a diverse set of investors, broadening ownership.

  5. Facilitates Growth: Capital infusion accelerates overall company development.

Disadvantages of SME Exchange:

  1. Limited Exposure: May have limited exposure compared to larger exchanges.

  2. Market Volatility: SME stocks can be more susceptible to market fluctuations.

  3. Lower Valuations: SME stocks may face lower valuations compared to larger companies.

  4. Stringent Listing Criteria: Meeting specific criteria can be challenging for some businesses.

  5. Limited Analyst Coverage: SMEs may receive less financial analyst coverage.

  6. Market Perception: Perception of smaller scale and higher risk.

  7. Market Depth: SME exchanges may have shallower market depth, impacting liquidity.

SME exchanges play a pivotal role in the growth journey of small and medium-sized enterprises. Offering access to capital, enhanced visibility, and a dynamic marketplace, SME exchanges empower businesses to expand, attract diverse investors, and foster credibility. While challenges exist, the benefits of listing on SME exchanges outweigh the drawbacks, positioning these platforms as crucial catalysts for the vibrant evolution of SMEs in the financial landscape.

G Akshay Associates