SEBI notifies norms for listing, trading on SME Exchange

The Securities and Exchange Board of India (SEBI) has come out with a legal framework for listing and trading of specified securities on the Institutional Trading Platform in an SME Exchange, without having to go through an initial public offer of shares.

The ITP will be a platform for listing and trading of specified securities of small and medium enterprises, including start-up companies in a 'SME Exchange' as defined under ICDR regulations.

The ITP will be accessible only to informed investors who are either individuals or institutions and the minimum trading lot on the platform would be Rs10 lakh.

Companies listed on ITP are restricted from making a public issue of its securities.

A public company seeking listing on an ITP should comply with the following requirements:

  • The company, its promoter, group company or director should not appear in the willful defaulters list of Reserve Bank of India as maintained by Credit Information Bureau (India) Limited;
  • There should not be any winding up petition in court against the company;
  • The company, group companies or subsidiaries should not have been referred to the BIFR at least fo five years prior to the date of application for listing;
  • No regulatory action should have been taken against the company, its promoter or director by SEBI, Reserve Bank of India, Insurance Regulatory and Development Authority or ministry of corporate affairs for the five years prior to the date of application for listing;
  • The company should have at least one full year's audited financial statements, for the immediately preceding financial year at the time of making the listing application;
  • It should not have been incorporated more than 10 years ago and its revenues have not exceeded Rs100 crore in any of the previous financial years; and
  • The paid-up capital of the company should not exceed Rs25 crore.

In addition, a company seeking listed on the SME exchange should have received certain minimum investment of Rs50 lakh in the equity shares from at least one alternative investment fund, venture capital fund or other category of investors / lenders approved by SEBI or from one or more angel investor who is a member of an association / group of angel investors, which fulfills the criteria laid down by the recognised stock exchange through the association / group.

Alternatively, the investments could also come from a scheduled bank for a company's project financing or working capital requirements.

However, three years should have elapsed from the date of such financing and the funds received have been fully utilised or a registered merchant banker has exercised due diligence and has invested at least Rs50 lakh in equity shares of the company, with a lock-in period of three years from the date of listing.

Alternatively a qualified institutional buyer should has invested at least Rs50 lakh in the equity shares of the company, with a three-year lock-in from the date of listing.

Such funding could also come from a specialised international multilateral agency or domestic agency or a public financial institution under section 2(72) of the Companies Act, 2013.

A company which meets regulatory requirements would have to apply to the recognised stock exchange for listing along with the information document containing disclosures as specified under Schedule XIX A of ICDR Regulations.

A company, which has received in-principle approval from a recognised stock exchange for listing of its specified securities on ITP would be deemed to have been waived by SEBI regulation.

Such listing should not be accompanied by any issue of securities or capital raising from public in any manner.

A company listed on ITP should not make an initial public offer while being listed on the platform. Such a company may raise capital through private placement or through a rights issue.

The company may raise capital through private placement or through a rights issue.

In case of a rights issue, there should be no option for renunciation of rights and the company seeking to get listed on ITP should agree to make necessary amendments to its articles of association to this effect.

The company making a rights issue should send a letter of offer to its shareholders through registered post or speed post or electronic mode and a company listed on ITP should not make an initial public offer while being listed on the platform.

In case of a rights issue, there should be no option for renunciation of rights and the company seeking to get listed on ITP should agree to make necessary amendments to its articles of association to this effect.

The company making a rights issue should send a letter of offer to its shareholders through registered post or speed post or electronic mode and the company has market capitalisation of more than Rs500 crore.

For this purposes, the market capitalisation would be calculated based on the average closing price of the shares for the previous three months.

A company listed on ITP would be delisted or permanently removed from a bourse for more than one year for failure to file periodic filings with the recognised stock exchange or comply with corporate governance norm(s).

Notwithstanding the above, recognised stock exchanges may specify non-compliance of the condition of listing.

A company seeking listing on ITP should enter into an agreement with the recognised stock exchange. Provisions regarding minimum public shareholding do not apply to companies listed on this platform since they are not allowed to make public issues while being listed on ITP and hence the same has been excluded from this listing agreement.