SEBI has introduced proposals to remove mandatory market-making and underwriting for SME IPOs to lower listing costs. While these changes aim to streamline the process, they have sparked concerns regarding potential liquidity hurdles for investors. The regulator is also increasing profitability requirements to ₹3 crore for issuers and lowering minimum investment thresholds to encourage wider retail participation.
The Securities and Exchange Board of India has proposed a significant restructuring of the SME listing framework, aiming to reduce the cost of compliance for smaller companies while simultaneously tightening entry standards to improve issuer quality. These proposals, which are open for public consultation until November 4, 2026, address the operational requirements that currently govern the Small and Medium Enterprise segment.
Under the current norms, companies must appoint a market maker for at least three years and maintain inventory worth 5 per cent of their listed securities. Additionally, mandatory 100 per cent underwriting is currently required for SME IPOs. The regulator is proposing the removal of these obligations to lower financial barriers for firms seeking to list. While this shift may reduce the cost burden, market observers note that removing market-makers could lead to liquidity challenges. Without a dedicated intermediary to provide price support, retail investors might find it difficult to exit positions in less active stocks, shifting the responsibility of price discovery entirely to organic market demand.
To balance the easier listing process, the regulator is raising the financial bar for companies. The proposed rules mandate that firms demonstrate an average operating profit of at least ₹3 crore over the preceding three years, a substantial increase from the existing requirement of ₹1 crore over two years. This change is designed to ensure that only more financially stable businesses enter the public market. Conversely, the proposals aim to broaden retail access by reducing the minimum application value to ₹1 lakh and permitting trading in single-share lots, a move that could attract a larger base of smaller investors.
These regulatory changes follow a period of intense activity in the SME segment. Data from B2K Analytics indicates that companies raised ₹3,791.67 crore via BSE SME and NSE Emerge during the July-September 2026 quarter, nearly double the capital raised in the previous three months. As IPO volumes climb, the regulator is focusing on these structural adjustments to maintain market integrity.
For investors, the key monitorable remains how the market manages liquidity if the mandatory support mechanisms are removed. The final impact of these proposals on stock volatility and investor protection will likely depend on the feedback received and the subsequent implementation of the refined guidelines.