This minimum exposure requirement, proposed in a draft paper on the operational mechanism for a trading platform especially for the SMEs, issued by Sebi on Monday, is to discourage risk-averse retail investors from investing in SMEs. The paper, however, suggests that retail investors having high risk appetite may be allowed to invest by way of specific allocations through mutual funds.
Previous efforts to operationalise the SME platform had failed in 1989 and 2005. This time, Sebi has taken feedbacks from market participants to tighten the loose ends in setting up the platform.
"Discussion paper on developing a market for Small and Medium Enterprises in India" stated that there was a need for developing a dedicated stock exchange for SMEs so that they could access capital markets easily, quickly and at lower costs. Sebi has sought public comments on this by June 6, 2008.
A company may have a maximum post-issue capital of Rs 25 crore for being eligible to participate in the SME exchange. "Specialised merchant bankers may be licensed for exclusively catering to the needs of the SME segment," the paper said. It said that there might not be any requirement of vetting of the offer document by Sebi since the intended investors were expected to make informed and calculated investments.
Some of the provisions of the existing DIP guidelines can be relaxed completely for SMEs. Price discovery may be made through fixed price mechanism or through book-building. In the secondary market, the paper said, the trading system might be either order-driven or quote-driven.
"The settlement may either be on rolling, trade for trade or call auction basis. Flexibility may be given to the exchange concerned", the paper stated.