An introduction to SME exchange of India

BANGALORE, INDIA: There are more than 900,000 companies active on the MCA (Ministry of Corporate Affairs) web portal across the country. Not only that, as many as 100 too 200 companies register with the portal on a daily basis. The total listed entities on this portal are only 6,000, out of which the shares of 3,000 companies are regularly traded on stock exchanges.

To have a better corporate governance for small and medium enterprises (SMEs) in the country and to facilitate access to global markets, it is highly necessary to formulate SME Stock Exchange reforms.

In 1988, the Government had announced a tax concession of 15 per cent for listed companies. A lot of companies voluntarily availed this concession and were listed on major stock exchanges. However, the concession was withdrawn later, due to differences in rates for the corporate, domestic sector as well as for foreign companies.

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Stock Exchanges: Prior to 1994 itself, the Bombay Stock Exchange (BSE) and regional stock exchanges used to function. Among them, the BSE was one of the premier Exchanges. After 1994, the National Stock Exchange (NSE) was launched and it initiated paper-less trading. Subsequently, the BSE also followed suit.

The regional stock exchanges used to function before the year 2000. After that, the mandatory clause was removed from the listing agreement due to the fact that the NSE was making inroads into rural, semi-urban and urban areas through screen-based trading. The NSE later replaced regional stock exchanges, and they are now surviving with a minimum turnover.

Regional Stock Exchange: The same can be renamed as SME Exchange to provide liquidity to SMEs. For Indian SMEs to market their products globally, raising of funds from Venture Capital or Private Equities are difficult. Thanks to the complex procedures of Funding authorities.

The Government can initiate stock exchange reforms in line with the Telecommunication reforms. The same principle should be applied to stock exchange reforms, too.

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Shareholding pattern at SME Exchanges: The SEBI should relax the minimum and maximum shareholding pattern. The company shares are to be widely held in these companies. They should fix at least 100 members in these companies. There should be provision to be contained in the SME listing agreement.

The Government should come forward to making stock exchange reforms and add more companies by introducing SME Exchanges with lesser compliance. Also, enterprises should come forward for listing and they must follow good corporate governance.

Conclusion: The Government should initiate SME Stock Exchange reforms with the following concessions.

1. Reduce joining fees and annual listing fees.

2. Limited paper work

3. Simpler delisting formalities

4. Minimal documentations

5. Tax concession for Listed companies.

Source: www.CAClubIndia.com