Exchanges would prefer companies with a sizable fund requirement to start with, say market players.

The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are ready to launch trading in the small and medium enterprises (SME) segment and a formal announcement is round the corner, according to officials. However, market players believe key issues regarding market-making and other costs are yet to be addressed.

The Securities and Exchange Board of India (Sebi) had set a three-year market-making criterion for SMEs planning a listing, which would ensure adequate liquidity and exit for investors. Mostly, the market makers are required to provide two-way quotes. But, stock exchanges, which act as facilitators to companies by putting these in touch with the merchant bankers, are unable to provide specific cost details with regard to market-making and other expenses.

In the first three years, there will be a market maker for a public issue, who will support the sustenance of the public offer by providing a two-way quote. Practically, he will hold a certain number of shares of a particular SME and facilitate trading in that security. After a buy order is received, he will immediately sell from its own inventory or seek an offsetting order. This process will facilitate transactions in SME securities and provide liquidity to the securities. However, for SMEs, this will not come free of cost. A fee will be charged by the market makers, increasing the cost of raising equity.

“We have submitted details of at least three companies with a exchange. But, since the IPOs of these companies are as small as Rs 50,00,000-Rs 100,00,000, exchange officials are not giving details about the various costs involved,” said a consultant.

For more visit: Business Standard

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