SME Exchange

Introduction

The Securities and Exchange Board of India (Issue Of Capital And Disclosure Requirements) Regulations define a “SME Exchange” as a trading platform of a recognized stock exchange or a dedicated exchange permitted by SEBI to list securities issued in accordance with Chapter XA of the SEBI (ICDR) Regulations, excluding the Main Board (which is in turn is defined as a recognized stock exchange having nationwide trading terminals, other than SME exchange).

An SME Exchange is a stock exchange dedicated to trading the shares and securities of small businesses that would otherwise struggle to be listed on the Main Board. In India, there are currently just two SME exchanges: the BSE SME platform (BSE) and the EMERGE Platform (NSE).

The company’s post-issue paid up capital must not exceed INR 25 crore to be listed on the SME Exchange. This means that the SME Exchange is not limited to small and medium-sized businesses, which are defined as businesses with an investment in equipment and machinery of less than INR 10 crore under “The Micro, Small and Medium Enterprises Development Act, 2006.” Currently, the minimum paid up capital necessary to be listed on the Main Board of the National Stock Exchange (NSE) is INR 10 crore, while the minimum paid up capital required to be listed on the Bombay Stock Exchange (BSE) is INR 3 crore. As a result, enterprises having paid-up capital ranging from INR 10 crore to INR 25 crore can migrate from the SME Exchange to the Main Board or vice versa.

SME Stock Exchange in India

There are numerous ways to invest in the stock market. It provides more options than simply buying and selling stocks on the secondary market. Apart from the well-known stock exchanges – where you can trade shares of publicly traded firms – there are many more choices. The primary market (IPO), the derivatives segment, and, most recently, the Small-Medium Enterprises (SME) exchange are all available. The SME exchange might be a superior platform for confident investors looking for innovative and more profitable possibilities.

Features of Small and Medium Enterprises

Typically, corporations use an Initial Public Offer (IPO) to list their shares on the exchange in the primary market (IPO). This primarily applies to huge corporations. Nonetheless, some small and medium businesses have the potential to provide investors with a higher return. Furthermore, certain investors with a superior understanding of measuring a SME’s risk appetite are interested in investing in SMEs that match their risk appetite. Both the NSE and the BSE have established separate SME stock exchanges in India to connect such investors with investees. The BSE stands for ‘SME Exchange,’ whereas the NSE stands for ‘Emerge.’

Listing Requirement for SMEs

There are thousands of companies listed on a traditional stock exchange. However, because awareness is still growing, the number of listings on the SME exchange is restricted. Furthermore, before the process of listing, the SME stock markets have admission restrictions such as positive net worth and cash flows for two years. Furthermore, organizations that have previously sought for winding up or restructuring are not allowed to list on the exchange. These limitations assist investors avoid unnecessary risk and guarantee that listed SMEs are legitimate.

Trading in SME Stock Exchange

Buying and selling on the SME stock exchange is similar to doing so on the BSE or NSE. It does not demand any additional steps. Nonetheless, there are several exceptions to the trade rules. The SME exchange’s lot size is bigger than the standard lot size, which is the smallest amount of shares you can buy or sell in a single transaction. Amounts less than Rs 1 lakh are not permitted to be traded. In addition, the lot size varies depending on the stock price. On the NSE Emerge, for example, if the stock price is less than Rs 14, the lot size is 10,000. However, if the stock price is discovered to be between Rs 120 and Rs 150, the lot size is reduced to 1,000.

Additionally, shares on the SME exchange can be purchased and sold in either the continuous or call auction markets. These shares, like cash, are divided into categories such as ‘rolling settlement,’ ‘block trading window,’ ‘odd lot trading,’ and so on. Furthermore, much like a typical trade, you may place both market and limit orders. Until the order is executed, these can be alter

Liquidity in SME Exchange

Trading on India’s SME markets should be approached with prudence. First and foremost, investors should be aware that the risk element associated with investing in small and medium-sized businesses is fairly significant. While they are capable of providing exceptional results, they also have a higher than usual risk of being harmed. As a result, thorough research is essential. In addition, when compared to normal exchanges, liquidity in SME exchanges is lower. It’s possible that some orders won’t find a buyer or vendor right away. As a result, it is critical for SME stock market investors to be long-term investors.

Conclusion

The Exchange’s SME platform is designed for small and medium-sized businesses with great development potential. The Exchange’s SME platform would be open to SMEs with post-issue paid-up capital of less than or equivalent to Rs.25 crores. The platform is meant to provide informed investors with longer investment horizons with a new and alternative asset class. As new, early-stage initiatives and modest quality companies expand, mature, and transition to the Exchanges’ main board, the platform will help them to raise much-needed expansion capital.

Reference

1. NSE, Small and Medium Enterprises (SME), https://www1.nseindia.com/getting_listed/content/sml_med_enterprise.htm#:~:text=The%20SME%20platform%20of%20the,25%20crores.

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