SEBI’s SME IPO plan may cut costs, but liquidity concerns remain
Scrapping mandatory market-making and full underwriting could lower listing costs, but experts caution that smaller trading lots will not guarantee exits from thinly traded shares
SEBI has proposed removing compulsory market-making and 100 per cent underwriting for small and medium enterprise (SME) initial public offerings (IPOs), with the aim of reducing costs and making the listing process more accessible. While experts argue that this reform could lead to healthier SME listings and a more genuine discovery of price through real demand-supply, concerns remain about the potential impact on liquidity.
Removing compulsory market-making may reduce compliance burdens, but it could also make it difficult for investors to sell their holdings when required, as there may not be sufficient buyers and sellers in the market. The regulator has also suggested reducing the minimum SME IPO application value and allowing trading in listed SME securities in lots of one share, while proposing to replace eligibility criteria based on paid-up capital with market-capitalisation thresholds.
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