As the complaints regarding fraudulent practices and gross violations by small and medium enterprises (SME) promoters have gone up, the Securities and Exchange Board of India (Sebi) is gearing up to tighten the norms related to the listing of SMEs and migration regulations, according to Ashwani Bhatia, Sebi’s whole-time member.
Speaking at an industry event in Mumbai, Bhatia stated that the consultation paper regarding the same is likely to be made public in the coming months. Sebi is expected to bring new norms regarding disclosure requirements, eligibility conditions and portions that are reserved for qualified institutional buyers (QIBs) along with the audit-related scrutiny.
While there have been calls regarding the removal of the quota for QIBs and anchor investors in the SME subscriptions, the SME segment has witnessed growth in the participation of institutional investors.
Noting that the smaller companies have been getting a good platform through SME exchange which has resulted in the reduction of their dependency on banks to get funds, Bhatia stated that the market regulator is aiming to bring high-quality SMEs to the platform of both exchanges through the maintenance of light-touch regulatory norms. The light-touch approach seeks lower compliance requirements in comparison to the companies that are listed on the mainboard.
There have been various instances of SME promoters being allegedly involved in the manipulation of prices through fictitious sales and revenue on the books. The cases of offloading holdings at inflated prices along with the siphoning off funds have led the market regulator to move towards the tightening of norms.
Urging the auditors to play the role of good players in the market ecosystem, Bhatia stated that the market regulator has referred the cases of violations by the auditors to the National Financial Reporting Authority. On the other hand, the exchanges have made efforts to filter out the poor revenue and poor profit bearing SMEs.
