Sebi proposes to bring stricter rules for SME IPOs

Markets regulator Sebi on Tuesday proposed stricter rules for SME IPOs by setting a minimum issue size for companies going public, doubling the minimum application size and introducing a "draw of lots" system for non-institutional investors (NIIs).

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In its consultation paper, Sebi proposed to increase the application size from Rs 1 lakh per application to Rs 2 lakh per application in SME IPOs to ensure that only informed investors with sufficient risk appetite and investment capacity can apply.

The markets watchdog also invited public opinions on whether the minimum application amount should be increased further to Rs 4 lakh. This move follows a rise in SME issues, which has driven significant investor participation. The applicant-to-allotted investor ratio surged from 4 times in FY22 to 46 times in FY23 and further to 245 times in FY24.

"The retail individual participation has increased in the SME IPO over the last few years. Therefore, considering that SME IPOs tend to have higher element of risks and investors getting stuck if sentiments change post listing, in order to protect the interest of smaller retail investors, It is proposed to increase the application size from Rs 1 lakh per application to Rs 2 lakh per application in SME IPO," Sebi said.