The Bombay Stock Exchange, which is planning to launch an SME Exchange from September 2011, will initially have at least five to ten companies listed on it.
?Our effort will be to try and get as many companies as possible. But to start with, we plan to have a minimum of 5-10 companies on our SME trading platform,? said Lakshman Gugulothu, CEO, BSE?s SME Exchange.
The exchange has already put in place adequate systems and monitoring facilities and has undergone a detailed inspection from Securities and Exchange Board of India. At present, the National Stock Exchange and BSE has received approval in principle from the capital market regulator for launching a separate platform for small and medium enterprises (SMEs) and are awaiting a final nod from Sebi. ?Our September launch will depend up on how soon we get the final Sebi approval,? said Gugulothu.
Both the exchanges are in the process of creating awareness among the SMEs and are holding discussions with merchant bankers to bring such companies on to the exchange platform. Though the exchanges are ready with their systems and processes, merchant bankers are still not comfortable with Sebi provisions requiring them to bear the responsibility for the market making exercise.
Current Sebi norms require merchant bankers to undertake market making through a stock broker who is registered as a market maker with SME exchange. The merchant banker shall be responsible for market making for a minimum period of three years.
?We should also feel comfortable with promoter of the company to assume the responsibility of market making for a longer period of three years,? said an investment banker. ?The key issue here is how the risk involved in market making will be shared between the issuer company, merchant banker and market maker,? said Gugulothu.
Earlier, merchant bankers had requested Sebi to either do away with the provision or reduce the tenure for market making to six months. Last week, few small- and mid-sized merchant bankers had supposedly met up with NSE officials reiterating their demand for relaxation in the norms to make it more viable. Since it is the mid-sized merchant bankers, which are dominant among the SMEs, lack of sufficient funds at their disposal is making the present Sebi provision less attractive for them to play an active role.
Market maker is a a very important intermediary who injects liquidity into securities by giving both bid and offer prices and is supposed to buy or sell securities in his own account on lack of trading volume.