SEBI against exuberance in SME IPO listings; board to discuss it soon: Official

Capital markets regulator SEBI is looking to curb exuberance, price manipulations, and fraudulent trading practices on the Small and Medium Enterprises (SME) exchange, a senior official said on Tuesday.

Addressing the India SME Banking Summit in Mumbai, SEBI Whole Time Member Ashwani Bhatia said the matter will be taken up at the regulator's forthcoming board meeting.

"We are cognisant of the fact that we need to prevent exuberance, price manipulation or fraudulent trading practices," Bhatia said at the seminar.

"We shall be discussing this in the forthcoming SEBI board meeting which will happen shortly," he added.

According to media reports, SEBI’s board is expected to discuss issues related to SME platforms on Wednesday.

Last month, the Securities and Exchange Board of India proposed several reforms to strengthen the regulatory framework for SME initial public offerings (IPOs), including increasing the minimum issue size, raising the minimum application size, and introducing a "draw of lots" system for non-institutional investors (NIIs).

SEBI proposed increasing the minimum application size in SME IPOs from ₹1 lakh to ₹2 lakh to ensure participation by informed investors with higher risk appetite. The regulator also sought public opinion on whether the threshold should be raised further to ₹4 lakh, which would eliminate the retail investor category and reallocate reservations to NIIs.

The proposals come amid a sharp surge in SME platform activity on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). The applicant-to-allottee ratio soared from 4 times in FY22 to 46 times in FY23 and further to 245 times in FY24, SEBI data showed.

Bhatia expressed concern about some practices in SME IPOs, including promoters misrepresenting facts, which makes it difficult for investors to assess a company's true value. He flagged tendencies among promoters to reduce stakes after IPOs.

"If you sell the stake of your own company, how would you expect investors to invest in your company?" Bhatia asked.

SEBI has proposed limiting the Offer-for-Sale (OFS) component in SME IPOs to 20 per cent of the issue size. Selling shareholders will also be restricted to offloading not more than 20 per cent of their pre-issue holdings on a fully diluted basis. At present, there are no such restrictions.

The regulator also suggested increasing the minimum number of allottees in SME IPOs from 50 to 200 to broaden the shareholder base. Additionally, it proposed reducing the threshold for mandatory appointment of a monitoring agency for SME IPOs from Rs 100 crore to Rs 20 crore to enhance oversight.

Further, the regulator recommended a "draw of lots" system for NIIs in oversubscribed SME IPOs, similar to the retail allotment process in mainboard IPOs, replacing the existing proportional allotment method.

Bhatia noted that SMEs have raised Rs 6,447 crore through 171 listings so far in 2024, while the market capitalisation of SME-listed companies stood at Rs 2.25 lakh crore.

The official said he is "sometimes shocked" by the investor interest, with some issuances subscribed over 1,000 times.