<p><strong>New Delhi (India), July 25:</strong> Recent regulatory updates in the SME (Small and Medium Enterprises) platform have sparked significant discussion within the financial community. They are being touted to curb market manipulation and improve liquidity. Thus, ensuring a more stable and transparent trading environment. </p><p>Hemant Sood, Managing Director of Findoc Investmart Private Limited, offers his expert analysis of the developments and their implications for the SME market. </p><p><strong>Regulatory Changes and Market Manipulation</strong></p><p>The decade-old SME platform, which has experienced substantial growth in recent years, faces new regulatory measures aimed at curbing market manipulation and improving liquidity. The NSE's recent circular capping the opening price of SME IPOs at 90% of the issue price marks a pivotal step in this regulatory overhaul. </p><p>Hemant Sood explains, "The NSE's decision to cap the opening price of SME IPOs is a necessary intervention to stabilize the market. Over the past few years, we've seen instances of extreme price volatility and manipulation, with some stocks listing at returns as high as 300-400%. Such scenarios create a bubble, attracting investments based on speculative gains rather than the company's fundamentals. This can lead to a distorted market where genuine investors are deterred, and the integrity of the platform is compromised, ultimately harming long-term growth prospects and investor confidence." </p><p><strong>History of SME Regulatory Measures: Growth with Gaps</strong></p><p>This isn't the first-time exchanges have tightened regulations on the SME platform. In September 2023, additional surveillance measures and a trade-for-trade framework were implemented to discourage speculative trading. Despite these efforts, the number of SME issues has surged from 59 in 2021 to 182 in 2023, with 117 issues in just the first half of this year.</p><p>Sood elaborates, "The SME segment's exponential growth is a clear indication of the opportunities it offers. However, this growth has also exposed gaps in governance. Promoters with questionable backgrounds have managed to launch public issues, which will obviously undermine the confidence of the investors. That is why such stricter checks, and a more rigorous approval process are essential to make sure that only credible companies enter the market."<strong> </strong></p><p><strong>Reforms Necessary to Build a Robust and Transparent SME Platform</strong></p><p>In addition to the tighter approval process, some other experts have also suggested further reforms such as raising the minimum ticket size for trading, increasing the issue size, and imposing a minimum lock-in period for promoter holdings. </p><p>Explaining the rationale behind, Sood says "These reforms are creating a more robust and transparent SME platform. Raising the minimum ticket size and issue size will filter out speculative investors and attract more serious, long-term participants. Additionally, a minimum lock-in period for promoters will ensure that they have a vested interest in the company's success, aligning their goals with those of the investors."<strong> </strong></p><p><strong>SME Platforms are essential, so is Finding Balance</strong></p><p>The SME platforms launched by NSE and BSE in 2012 have played a significant role in providing smaller firms with a means to raise capital. These platforms operate under fewer disclosure norms and lower issue size requirements compared to mainboard IPOs, making them accessible to a broader range of companies. </p><p>"SME platforms are indispensable in India, where numerous smaller firms may not meet the criteria for mainboard listings. These platforms offer a critical avenue for raising funds and expanding their operations," notes Sood. "However, it's vital to strike a balance between preventing irrational exuberance and ensuring these platforms remain attractive to genuine companies." </p><p><strong>Conclusion</strong></p><p>The ongoing regulatory changes are a step in the right direction for ensuring the SME platform's stability and credibility. As Hemant Sood highlights, the focus should be on creating a transparent and trustworthy environment where genuine companies can thrive, and investors can confidently participate. </p><p>"Finding the middle ground between preventing speculative bubbles and fostering genuine interest is key. With the right measures, the SME platform can continue to be a cornerstone of India's economic growth, offering opportunities for both companies and investors," concludes Sood.</p>
<p><strong>New Delhi (India), July 25:</strong> Recent regulatory updates in the SME (Small and Medium Enterprises) platform have sparked significant discussion within the financial community. They are being touted to curb market manipulation and improve liquidity. Thus, ensuring a more stable and transparent trading environment. </p><p>Hemant Sood, Managing Director of Findoc Investmart Private Limited, offers his expert analysis of the developments and their implications for the SME market. </p><p><strong>Regulatory Changes and Market Manipulation</strong></p><p>The decade-old SME platform, which has experienced substantial growth in recent years, faces new regulatory measures aimed at curbing market manipulation and improving liquidity. The NSE's recent circular capping the opening price of SME IPOs at 90% of the issue price marks a pivotal step in this regulatory overhaul. </p><p>Hemant Sood explains, "The NSE's decision to cap the opening price of SME IPOs is a necessary intervention to stabilize the market. Over the past few years, we've seen instances of extreme price volatility and manipulation, with some stocks listing at returns as high as 300-400%. Such scenarios create a bubble, attracting investments based on speculative gains rather than the company's fundamentals. This can lead to a distorted market where genuine investors are deterred, and the integrity of the platform is compromised, ultimately harming long-term growth prospects and investor confidence." </p><p><strong>History of SME Regulatory Measures: Growth with Gaps</strong></p><p>This isn't the first-time exchanges have tightened regulations on the SME platform. In September 2023, additional surveillance measures and a trade-for-trade framework were implemented to discourage speculative trading. Despite these efforts, the number of SME issues has surged from 59 in 2021 to 182 in 2023, with 117 issues in just the first half of this year.</p><p>Sood elaborates, "The SME segment's exponential growth is a clear indication of the opportunities it offers. However, this growth has also exposed gaps in governance. Promoters with questionable backgrounds have managed to launch public issues, which will obviously undermine the confidence of the investors. That is why such stricter checks, and a more rigorous approval process are essential to make sure that only credible companies enter the market."<strong> </strong></p><p><strong>Reforms Necessary to Build a Robust and Transparent SME Platform</strong></p><p>In addition to the tighter approval process, some other experts have also suggested further reforms such as raising the minimum ticket size for trading, increasing the issue size, and imposing a minimum lock-in period for promoter holdings. </p><p>Explaining the rationale behind, Sood says "These reforms are creating a more robust and transparent SME platform. Raising the minimum ticket size and issue size will filter out speculative investors and attract more serious, long-term participants. Additionally, a minimum lock-in period for promoters will ensure that they have a vested interest in the company's success, aligning their goals with those of the investors."<strong> </strong></p><p><strong>SME Platforms are essential, so is Finding Balance</strong></p><p>The SME platforms launched by NSE and BSE in 2012 have played a significant role in providing smaller firms with a means to raise capital. These platforms operate under fewer disclosure norms and lower issue size requirements compared to mainboard IPOs, making them accessible to a broader range of companies. </p><p>"SME platforms are indispensable in India, where numerous smaller firms may not meet the criteria for mainboard listings. These platforms offer a critical avenue for raising funds and expanding their operations," notes Sood. "However, it's vital to strike a balance between preventing irrational exuberance and ensuring these platforms remain attractive to genuine companies." </p><p><strong>Conclusion</strong></p><p>The ongoing regulatory changes are a step in the right direction for ensuring the SME platform's stability and credibility. As Hemant Sood highlights, the focus should be on creating a transparent and trustworthy environment where genuine companies can thrive, and investors can confidently participate. </p><p>"Finding the middle ground between preventing speculative bubbles and fostering genuine interest is key. With the right measures, the SME platform can continue to be a cornerstone of India's economic growth, offering opportunities for both companies and investors," concludes Sood.</p>