India's market regulator is considering a comprehensive overhaul of SME market rules, including removing restrictions that make shares in the segment easier to trade. According to reports from Mint, Sebi chair Tuhin Kanta Pandey highlighted that the current market-making framework is not functioning properly and is becoming more costly than the main board. Under the existing framework, designated intermediaries are required to continuously provide buy and sell quotes for stocks, but this system has failed to deliver adequate liquidity while adding costs for companies.
The review comes after a significant expansion in SME market activity, with SME IPOs raising a record ₹10,955.1 crore in FY26, up from ₹9,119.9 crore in FY25. As reported by Mint, SME companies raised ₹733 crore in May alone, following a softer April period. This strong performance has prompted Sebi to reassess the effectiveness of current regulations governing the segment.
Sebi is examining how SME shares trade after listing, with Pandey noting that the creation of odd lots has made it difficult for investors to trade their holdings. According to Mint, an odd lot represents a quantity of shares smaller than the standard trading lot, which can make buying or selling shares more difficult. The regulator is considering possible changes to lot sizes or the trading framework to address these liquidity issues.
Another potential change being considered involves rules linked to paid-up capital, with Pandey stating that transactions under the existing framework had been linked to paid-up capital and that this linkage needs to be de-linked. As reported by Mint, Sebi will bring a comprehensive reform proposal and issue a consultation paper for these changes. The review is part of a thematic assessment of the SME framework approved by Sebi's board meeting in June for fiscal year 2027.
