SME exchange not immediately on the cards
Moneylife Digital Team 12 July 2010

BSE and MCX have filed their preliminary applications with SEBI to launch SME exchanges but there is little chance of this segment coming up in the near future

Since previous attempts to launch an exclusive platform for small and medium enterprise (SME) have failed, market regulator Securities and Exchange Board of India (SEBI) is moving cautiously about green signalling the idea again. The regulator is currently seeking feedback from the market to ascertain the impediments, which surfaced in its past efforts, to launch an SME exchange.

Unfortunately, this means that there has been no headway in finalising what the framework of an SME exchange will be. India has made two attempts to set up SME exchanges but both these attempts failed. The country's oldest exchange for SMEs, Over-The-Counter Exchange of India (OTCEI), was set up in 1989. It failed because of technology issues as well as regulatory confusion over what needs to be done to make it grow. The extremely lax regulations for new issues in 1994-95 encouraged companies to easily list in National Stock Exchange and the Stock Exchange, Mumbai (BSE), ignoring OTCEI. OTCEI also relied on the market-making system and market makers simply vanished after 1995. Under the next experiment, the BSE was directed to launch IndoNext Platform for SME in 2005 because that's what the then finance minister P Chidambaram wanted. But all BSE did was push out some poor quality and illiquid scrips to that segment.

SEBI is has been making some tentative attempts to launch an SME market for a few years now. The regulator came out with the guidelines for the SME exchanges on May 17, 2010.

"Attempts in India to establish exchange of small company is not a new attempt. Unfortunately these attempts did not work. A new attempt is being made. We will take a very constructive approach. We are conscious of the fact that small companies cannot bear the same kind of compliance cost that the bigger companies find it easy to do and therefore we are trying to reduce the compliance cost. As a regulator we need to keep a balance. We also need to protect the interest of the investor who are coming in and investing in their markets.

Compliance cost cannot be at the cost of not providing enough information to the investors who are going to invest. We are trying to do it in a manner where our chances of success improve" said C B Bhave at an event organised by small and medium enterprise (SME) Chamber of India, Mumbai recently.

Asia's oldest bourse BSE and the Multi Commodity Exchange (MCX) have filed a preliminary application with the capital markets regulator SEBI for launching an SME platform. "We have filed a preliminary application with SEBI for an SME exchange" said Madhu Kannan, MD & CEO, Bombay Stock Exchange (BSE).

Mr Joshep Massey, MD & CEO of Multi Commodity Exchange Ltd (MCX) also shared a similar plan "We have applied for an SME exchange." Even the National Stock Exchange is believed to have expressed its interest to launch an SME exchange. However, Mr Bhave did not clarify on the timeframe it is looking to launch this platform and said that "the ball is their (exchange's) court."

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