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In an effort to boost trading of shares on the small and medium enterprises platforms of the BSE and the NSE, the Finance Ministry plans to make better finance arrangements for market makers.
“The effort (is) to (provide) better financing facility through SIDBI (a dedicated financial institution for micro, small and medium enterprises) for market makers dealing in shares of small and medium enterprises,” a senior Finance Ministry official told Business Line . The SEBI has permitted market making facility for the dedicated segment dealing with shares of small and medium enterprises on BSE and NSE.
Market making is an arrangement to provide two way quotes for shares on a stock exchange, basically to provide liquidity. Suppose, one wants to buy or sell shares of a particular company and if there are no willing buyers or sellers, the market makers help in completing the trade. Any member of a stock exchange can become a market maker, subject to fulfiling certain criteria and getting registered.
SEBI had made market making mandatory for all scrips that are traded on the SME platform. . Market makers will provide two-way quotes for 75 per cent time. There cannot be more than five market makers for any particular scrip. All of them will compete with each other to provide better quotes for the investors.
Although the RBI allows banks to provide credit facilities to market makers on the basis of their commercial judgment, most of these funds are provided as advance against shares. Hence, most of these funds are used to service the main segment. As a result, some now argue in favour of a dedicated institution for the SME segment. The official hoped that the proposed system will come into existence soon.
SEBI had allowed a dedicated segment for SMEs in 2010. Consequently, BSE received SEBI approval to launch the BSE SME in 2011. NSE followed suit and launched the ‘Emerge’. Currently, BSE SME exchange has 45 scrips listed.
On January 24, 19 scrips were traded on the platform with 6.51 lakh shares exchanged hands. Total turnover was ₹603.26 lakh. The Web site of NSE Emerge shows only four scrips that are eligible for trading.
A company with less than ₹25 crore of post issue can get listed on SME platform. This will help an emerging entrepreneur to access the capital market and get cheaper capital.
A listing on the platform requires a minimum of 50 investors. Once a small company attains critical threshold, it can migrate to the main exchange.
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