SEBI clarifies guidelines for setting up of SME exchange

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SME Times News Bureau | 19 May, 2010
The stock market regulator, Securities & Exchange Board of India (SEBI) has clarified the policy guidelines for listing and trading of the securities issued by small and medium enterprises (SMEs).

SEBI on Tuesday issued a circular for setting up of a Stock exchange, a trading platform by a recognized stock exchange having nationwide trading terminals for SMEs.

According to the SEBI circular, companies listed on the SME exchange will not be required to send a full annual report to their shareholders and also need not publish their financial results as required in the main stock exchange.

SEBI said that issuer listed on a SME exchange and whose post- issue face value capital pursuant to further issue of capital does not exceed Rs. 10 crore shall make further issue of specified securities.

"And also an issuer listed on SME exchange proposing to issue further capital pursuant to which their post-issue face value capital may increase beyond Rs. 25 crore shall migrate to the main board, subject to obtaining in-principle approval of the main board before issue of such securities," it said.

SEBI clearly stated that the issue made in terms of Chapter XA of the ICDR Regulations shall be 100 percent underwritten and the merchant banker/s shall underwrite 15 percent in their own account. It added that the merchant banker to the issue will undertake market making through a stock broker who is registered as market maker with the SME exchange.

The merchant banker shall be responsible for market making for a minimum period of three years from the date of listing of the specified securities, SEBI said.

The regulator in its circular stated that a minimum number of 50 (fifty) investors is required at the IPO stage only. There shall be no continuous requirement of minimum number of shareholders. and not on a continuous basis.

Further, it added, no fresh registration needs to be obtained by a sub-broker, where such registered sub-broker is affiliated to stock broker who is eligible to trade on SME platform of the respective exchange.

A company desirous of being recognized as a SME exchange may apply to Market Regulation Department, SEBI mentioned in its circular.

SEBI has also decided to grant approvals to only corporatised and demutualised entities for operating as an SME exchange, unlike earlier when it had decided to give time to entities to comply with the regulations.

The applicant requires a balance sheet networth of at least Rs. 100 crores and must have have nation wide trading terminals and an online screen-based trading system, SEBI stated, adding that the exchange must also have an online surveillance capability which monitors positions, prices and volumes in real time so as to check market manipulation.

SEBI mentioned that the exchange should have adequate arbitration and investor grievances redressal mechanism operative from all the four regions of the country, and also the same risk management system and surveillance system as are required for cash market segment of a recognized stock exchange

"And the minimum lot size for trading on the stock exchange shall be Rs. 1 lakh rupees," the SEBI circular added.