Urgent measures to curb speculation as SME stocks storm on SEBI's radar

MUMBAI: After the launch of the SME exchange platform, which was started with the aim of providing flexibility to small and micro companies to raise capital in the Indian stock markets, the storm in the stocks that started going unchecked in this segment has now come under the radar of the regulatory body SEBI, the SEBI has been forced to take immediate steps to curb this rampant speculative storm. .

But what other main reasons, factors forced SEBI to intervene in the storm in the stocks of these SME companies listed on the BSE MME and NSE Emerge platform, remains to be seen. Investors need to know these factors for their own interest and security before investing.

Whether the SME IPO mainboard is the link between the main stock markets or the means of manipulation is a big question that is difficult to solve. To know the difference between mainboard and SME of share markets, the minimum number of subscribers or allottees is 1000 in mainboard and 50 in SME. The minimum amount to apply in an IPO is Rs.13,000 to Rs.15,000 for mainboards, while it is more than Rs.1,00,000 for SMEs.

DRHP filing means filing the prospectus for the issue with SEBI for the main board and getting it verified by SEBI, while for SMEs it has to be filed with the exchanges-stock markets and verified by the exchange itself. The paid-up capital after the issue is over Rs 10 crore in mainboard and Rs 1 crore to Rs 25 crore in SME. While the time and capital requirements are slow and expensive on a mainboard, they are fast and cheap in an SME. Also the reporting requirement is quarterly on the main board, while it is semi-annual in SMEs.

BSE SME Platform's journey of the BSE IPO Index from 2013 to 2023 shows that the index has risen by 60 percent since its inception, while registering an astounding 82 percent in the last five years, 195 percent in the last three years and 132 percent in the last one year. is So far 455 companies have been listed on the BSE SME platform. Out of which 179 companies have shifted to main board. While 275 companies are currently listed, 24 companies have been suspended.

Now that the capital market regulatory body Securities and Exchange Board of India (SEBI) has been forced to intervene in this storm going on in the SME segment, it has started to be discussed whether the SME IPO segment will also be taken under its full regulation by SEBI. RHP filings are done by SME companies to SME Exchanges and are verified by SME Exchanges.

Modus operandi of promoter-brokers

Assume a promoter wants a valuation of his company of Rs.100 crores. The promoter then decides to bring an issue of Rs.50 crore. Which creates artificial demand for the issue by dealing with offline brokers. After this, the issue arrangers-financiers pay the money and start the exercise of cornering the shares before the issue opens for subscription. Because of this, the share price is inflated in the gray market. Retailers are also getting tempted by seeing the share prices in the gray market. Brokers buy applications from the gray market in subject two and the shares are listed around the promoter-issuer's fixed valuation and thus listing is said to carry out a pump and dump, surge and sell operation.

Social media modus operandi

A cartel of brokers and businessmen spends money and time on research to find viable companies. Social media accounts with a good follower-following are typically hired to generate influence for an issue. All these social media accounts start posting the same matter. Due to which a stir is created regarding the issue in retail. The shares are then listed at a small premium and retailers start selling. It is said that these stocks are being cornered by the cartels, strengthening their positions and driving up the prices, and these same stocks are being sold at high prices to the retailers.