NSE Updates SME Listing Rules Amid Quality Concerns

The National Stock Exchange(NSE)  is shaking things up with new rules for small and medium enterprises (SMEs) that want to list on its NSE Emerge platform. Starting September 1,2024 companies will need to show positive free cash flow (FCF) for at least two out of the last three years to be eligible inorder to ensure that businesses are financially healthy before they raise funds publicly. The FCF figures will come from audited balance sheets.

Listing Trends & Changes

The NSE’s decision comes after a surge in SME listings, with over 500 companies now on NSE Emerge. July saw a record 22 new SMEs and Rs.1,030 crore raised. To keep things consistent, the NSE had already set a cap on how much SME stocks could jump on their debut, limiting the opening price to 90% above the issue price. This was to standardize price setting during the special pre-open session for SME IPOs.

Tighter Controls

Given the concerns around price volatility and potential financial misreporting, the NSE is now implementing stricter oversight for SME stocks which includes new monitoring measures that were previously only applied to mainboard stocks. 

Closer Watch

With worries about price spikes and financial manipulations, the NSE is also stepping up its oversight of SME stocks. New surveillance measures are being introduced, which were previously only used for mainboard stocks. While SME IPOs are approved by the stock exchanges, they don’t go through the same level of scrutiny from the Securities and Exchange Board of India (SEBI), which has taken action against fraud in the past.

Conclusion: In conclusion, these updates by the NSE are aimed at making SME listings more reliable as by enforcing stricter financial criteria and focusing on monitoring, the exchange hopes to make sure that smaller companies are in a solid position before they hit the public market.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.