SMALL and medium enterprises (SMEs) may soon have their own dedicated stock exchange. Sidbi, National Stock Exchange, IDBI and IL&FS have submitted a proposal to market regulator Sebi in this regard.
The Bombay Stock Exchange (BSE), Delhi Stock Exchange (DSE) and some others are also understood to be in the fray for setting up a trading platform for SMEs. Since there are a number of proposals, Sebi may call for expressions of interest (EoI), though there is no final decision on the process of selecting a promoter for the proposed exchange.
The exchange will enable SMEs, whose capital requirement is very small, to raise money at lower cost. At present, the total cost of raising money from the capital markets in case of a large issue (about Rs 200 crore) comes close to 5-6% of the issue and goes up by 1% if the amount is very small.
If the proposal goes through, the new exchange will not only bring down the cost of raising money but also costs associated with listing and compliance such as fees to be paid to the exchanges, a government source said. The market regulator may also look at tweaking the initial public offer process for companies that list on exchanges dedicated to small companies.
According to the proposal being examined, such companies may only be allowed to sell shares to qualified institutional buyers (QIBs) and high net worth individuals (HNIs). At present, 35% of shares are reserved for retail investors, 15% for high net worth individuals or corporates and 50% for QIBs. Within the QIB quota, 5% is reserved for mutual funds. However, a final view on this aspect is yet to emerge.
Sebi recently invited institutions to make presentations on the proposed exchange and some of the presentations have supported this view.
The market regulator is treading on the issue cautiously and rightly so. The OTC Exchange of India (OTCEI), launched in the 90s for listing small and medium sized companies, had not been very successful. Though experts say the reason for its failure was more related to technology and launch of rolling settlements at a time when the concept was not understood by the market.