MUMBAI, MAY 26: The Securities and Exchange Board of India (Sebi) doesn’t want retail investors to crowd in the proposed small and medium enterprise (SME) exchange. In order to have “only informed, financially sound and well-researched investors” in the proposed exchange for SMEs, SEBI has proposed a minimum investment size, around Rs 5 lakh, at the time of the IPO of a company. To facilitate retail participation in SMEs for investors having high-risk appetite, specific allocation through mutual funds may be permitted, SEBI said in a discussion paper issued on Monday.

Further, in order to ensure that “the relaxed criterion for SMEs does not result in retail investors being drawn in”, SEBI said a minimum trading lot of Rs 5 lakh needs to be prescribed. This means retail investors won’t be able to directly invest or trade in companies listed on the SME exchange.

For becoming eligible to participate in the SME exchange, a company may have a maximum post-issue capital of Rs 25 crore. It proposed that specialised merchant bankers may be licensed for exclusively catering to the needs of the SME segment.

According to the SEBI, there may not be any requirement of vetting of the offer document by the Board since the intended investors are expected to make informed and calculated investments. It also relaxed eligibility norms for listing on the SME exchange. As per the existing DIP guidelines, the issuer company is required to have net tangible assets of at least Rs 3 crore in each of the preceding three full years, a track record of distributable profits for at least three out of immediately preceding five years and a net worth of at least Rs 1 crore in each of the preceding three years. “These may be relaxed completely for SMEs,” Sebi said.

Exchange for small firms

•Minimum investment size of Rs 5 lakh at the time of the IPO

•Retail investors can invest through mutual funds

•Companies to have maximum post-issue capital of Rs 25 cr

•No vetting of offer document by SEBI

•No other eligibility norms for listing on the SME exchange

•Underwriting should be made mandatory