Sebi to lower lot size to boost trading in SMEs

According to a person familiar with the development, the proposal under consideration is to reduce the minimum trading lot for the secondary market transactions in the SME Exchange.

While the minimum investment size at the time of an IPO will remain at Rs 1 lakh, merchant bankers have requested the regulator to reduce the minimum trading lot for secondary market transactions in the SME listed securities after two or three quarters post listing. Once the trading lots are reduced for the secondary market transactions, even small investors will able to gain exposure to quality companies in the SME platform.

“At the time of an IPO, the company is not known in the market and there is always a risk associated with investment in such securities. However, after two or three quarters post listing, the company is known in the market and has greater visibility. Reducing the minimum trading lot for such stocks in the secondary market will widen investor participation,” said an investment banker.

The intention behind prescribing a higher investment limit at the time of IPO is to ensure that only well informed investors participate in such public offers. Currently, the trading lot in a SME exchange is standardised.

According to Sebi norms, if the shares are priced in the range of Rs 10 and Rs 14 per share, a lot should contain a minimum of 10,000 shares. Market participants said that if an investor invests Rs 1 lakh in a lot containing 10,000 shares, he or she doesn’t have the flexibility to sell a lower number of shares in the secondary market.

There are about 106 SMEs that got listed on the BSE SME platform out of which six companies have migrated to the main board. On the other hand, the NSE has seen seven IPOs till date out of which one company has migrated to the main board.