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Market regulator Securities and Exchange Board of India (SEBI) has made a lot of sound and dance about its proposed exchange platform for small and medium enterprises (SMEs). It has announced a list of norms for the new platform, which leave several questions unanswered. For instance, will the new platform be successful at attracting SMEs? Would it create a thriving public market in SMEs allowing them to raise capital? And why have previous experiments such as IndoNext (on the BSE) failed?
Previous attempts at creating a similar platform were fraught with issues relating to liquidity and inadequate participation due to lack of awareness. Jagannatham Thunuguntla, equity head, SMC Capitals says, “The main challenge with creating an SME platform anywhere in the world is that of ‘illiquidity of the trading scrips’ and lack of sufficient trading volumes of the stocks trading on these platforms. Hence, once the trading volumes of these stocks dry up, these stocks gradually lose interest from investor circles.”
One of SEBI’s norms specifies that merchant bankers to the issue will bear responsibility for market making for a minimum period of three years. It remains to be seen whether merchant bankers will be willing to stay around for three years. Mr Thunuguntla adds, “This time SEBI has introduced the concept of ‘mandatory market making’ for three years by the merchant bankers of all the SME IPOs that get listed on these platforms. One may need to wait and see how this market making works out in ensuring good trading volumes. Once market participants get familiar about these new developments, gradually action may pick up on these platforms.”
Madhabi Puri Buch, managing director and chief executive of ICICI Securities explains, “While the responsibility on the merchant bankers will be considerable, this will have the effect of ensuring that only those issues in which the merchant bankers have full confidence are brought to the public on this platform. The guideline envisages that the merchant bankers can tie up with a registered private equity entity in order to facilitate market making and this will assist them in ensuring that risks are better managed.”
SEBI was previously looking at creating a separate SME exchange altogether, but instead settled on a separate SME platform in the existing stock exchanges. Mr Thunuguntla feels that this is a good idea, as the existing stock exchanges already have tried-and-tested technology platforms and strong clearing mechanisms. If another SME exchange is to be created, then creating technology and clearing mechanisms all over again may prove to be challenging.
– Sanket Dhanorkar
kishoreghiya
9 years agomr. sanket interesting report and comments by two persons.We would have been educated if you had done research and reported how many small and medium exchanges function in usa, how easy it is to raise risk capital in usa where 56% household savings are in capital market as compared to 2% in india.the amount on money lost in 2007 scam ipo like reliance power and other reality issues is much more than all the vanishing companies that raised capital when access was easy.our regulators are having clay feet and are worried all the time about deregulation and we investors are forced to lose by measly FD returns.
Can we have more alternate avenues to invest as they have in developed countires. can we have more articles in invetor education so we become mature and able to decide about risk taking ourselves rater than reading all the doctored articles.
Kishore ghiya mob 09825217857