SME Exchanges and Benefits of SME Listing

30 May, 2019

SME Exchange

As per SEBI guidelines a trading platform of any recognized stock exchange (excluding the Main Board) which has nationwide trading terminals and lists specified securities of Small & Medium Enterprises as specified under Chapter XB of SEBI (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009 is considered as an SME Exchanges or SME Listing. This will include any stock exchange which is recognized for this purpose.

Why were SME Exchanges Introduced?

In a country like India, Small and Medium-sized Enterprises play a very important role and are silent drivers of economic development in the country. But, one of the major issues faced by them is access to capital. They also wish to get listed but fail to meet the eligibility criteria for the recognized stock exchanges.

This is the reason need for SME Exchange realized. Securities Exchange Board of India first initiated the idea of SME exchange in 2008 to encourage equity capital flow in the MSME Sector. In our country, these SME exchanges are established and function within main recognized stock exchanges like National Stock Exchange or Bombay Stock exchange.

It was later in 2012 the SME Exchanges were launched in the following forms:

BSE SME under Bombay Stock exchange.
NSE Emerge under National Stock Exchange of India.

Such SME Exchanges were introduced with a view to providing the listing platform to such organizations through launching SME IPO with very minimum compliances and cost as compared to launching an IPO on mail board. With the progress of their organizations, they have an option to migrate to main exchange (NSE or BSE) without much hassle.

READ What is the Agneepath Scheme in India?

How is an SME Exchanges different from Traditional Exchanges

Everybody is familiar with BSE and NSE. Any entity planning to go public, make the initial public offer and list its securities on such traditional exchanges. They are also termed as the main board. In order to list their securities, they are required to fulfill very strict eligibility criteria and pre-requisites.

However, the SME Exchange is launched for Small and medium enterprises, thus the pre-requisites for launching an IPO on them are not very stringent.

The main point of differences are the eligibility criteria for launching an IPO on such platforms. Following are the parameter for listing on them:

Benefits of SME Listing

SME Listing provides an additional opportunity to small and medium level entrepreneurs and corporates to raise equity capital.
Easy funding for new projects, expansions, diversifications and other similar projects.
With access to equity capital, organization’s debt burden can be reduced. This leads to reduced costs and well-balanced financials.
With improved financials, the Company can raise funds t efficient rates.
The listing provides recognition and better market perception among prospective investors.
An SME IPO also opens up other ways to raise capital like right issue, preferential issue and also attracts other qualified and professionals investors.
The listing comes with liabilities of various disclosures which helps in maintaining transparency in the working.
Once a company is listed, it can be independently valued by the market forces.
The SME can launch IPO on the trading platforms by meeting minimum compliances ad listing requirements.
Once an SME is listed on the SME exchange, with time it can easily migrate to Main Board but only after approval is taken from existing shareholders.
Listing ensures good corporate governance and better sustainability for the organization.