SEBI considers easing SME IPO rules to reduce listing costs significantly

The Securities and Exchange Board of India, or SEBI, has a plan for SME initial public offerings, or IPOs. This plan involves scrapping mandatory market-making and full underwriting. An IPO is a way for companies to raise money by issuing shares to the public.

A market-making system is where a market maker buys and sells securities to provide liquidity. Underwriting is when an investment bank or broker agrees to buy the entire offer if there are not enough buyers. These systems are designed to help companies raise money and provide a market for their shares.

SEBI's plan could lower the costs of listing for SMEs. This is because market-making and underwriting can be expensive. By scrapping these requirements, SMEs may be able to list their shares more cheaply. However, experts are cautioning that smaller trading lots will not guarantee exits from thinly traded shares.

What it means for investors: the plan may make it cheaper for SMEs to list, but it may also make it harder for investors to sell their shares. This is because thinly traded shares can be difficult to exit, even with smaller trading lots. Liquidity refers to the ability to buy or sell shares quickly and at a fair price, which is an important consideration for investors.