A Loophole Lets Retail Investors Skirt Bar on SME IPO Bidding

Regulations barring retail investors from the high-risk initial public offerings of tiny businesses have failed to prevent the category from participating in at least a few such issues. The reason: a loophole in the rules.

- Srushti Vaidya & Ram Sahgal

National Stock Exchange and BSE Ltd, in consultation with the Securities and Exchange Board of India (Sebi), amended rules to raise the minimum bid for the IPOs of small and medium enterprises (SMEs) to more than ₹2 lakh for offers filed with the exchange after 8 March. The change in Regulation 267 of the Issue of Capital and Disclosure Requirements effectively bars retail or small individual investors from such issues, since they cannot invest more than ₹2 lakh.

However, IPOs approved before the 8 March cut-off can still offer small investors a chance to bid below ₹2 lakh. That's because exchanges give companies a window of one year from the date of approval to launch their maiden offer.

Unless the bourses issue circulars offering clarity, retail investors may be unable to participate in fresh SME IPOs but may be able to bid in older offers, according to analysts.