On 27th April 2012, Ms Anjali Aggarwal, AVP, Corporate Professionals delivered a lecture on “Role of CS in SME Exchange”, at ICSI South Delhi Study Circle. In her presentation, she covered not just the procedural nitty gritties for SME listing, but also the intent of the law makers behind the same. She also laid emphasis on how the Company Secretaries can play a pivotal role in an SME listing.

1. ROLE OF CS IN
MANAGING
SME IPO THROUGH
BSE SME STOCK
EXCHANGE

2. Classification of Micro, Small and Medium
Enterprises

3. SME and Indian Economy
• Backbone to the economy of developing
countries
• SME constitutes bulk of Industrial base, 40% of
exports and almost 8 % to the GDP
• 2.6 Crore in number, provide employment to
about 6 Crore people

4. The Micro, Small and Medium Enterprises Development Act, 2006
• An enactment of Government of India
• Provides for facilitation of promotion, development and
enhancing the competitiveness of MSMEs
• Introduction of statutory consultative and recommendatory
bodies on MSME polices
• Statutory basis for purchase preference and credit policies
• Improve realization of payments of MSMEs

5. SME Exchange……
• Jan 2010: The Prime Minister's Task Force recommended to set-up a dedicated
Stock Exchange/ Platform for SMEs.
• May, 2010: SEBI issued a final circular for setting up a stock exchange/ trading
platform by a recognized Stock Exchange having nationwide trading terminals for
SMEs.
• SEBI also laid down the Regulations for the governance of SME Exchange/Platform.
Chapter XB has been inserted in the ICDR Regulations.
• Model Equity Listing Agreement has been issued.
• May 2011: Bombay Stock Exchange Ltd received an ‘in-principle’ approval from
SEBI for launching the SME Exchange.

6. SME EXCHANGE-
REGULATORY
ASPECTS

7. SEBI Guidelines:
Chapter XB of the SEBI (ICDR) Regulations
Exchange Coverage
Post Issue Face Value of Coverage
Capital
Up to Rs. 10 Crores Covered under the SME Platform
Rs. 10 Crores to Rs. 25 May get Listed at SME Platform
Crores
Above Rs. 25 Crores Necessarily Listed at Main Board
of the Exchange

8. Chapter XB of the SEBI (ICDR) Regulations
Other Provisions
• Provision for Migration to/ from Main Board
• Minimum Application Amount/ Trading Lot – Rs. 1,00,000
• Eligibility of Existing Members Without any further registration
• 100% underwritten issues
• 15% mandatory underwriting by Merchant Bankers
• Minimum market making for 3 years by Merchant Banker through
Registered Stock broker

9. • Exempt from Regulations 25, 26 and 27 of ICDR Regulations
 Reg. 25 provides for the reference dates on which the
provisions of Chapter III of the ICDR Regulations must be
satisfied.
 Reg. 26 provides for the conditions of the Initial Public Offer. A
brief is as under:
– Minimum Net tangible assets to be Rs. 3 Crores
– Track record of distributable profits for minimum 3 out of 5
years
– Net worth of at least Rs. 1 Crore
 Reg. 27 provides for the conditions which shall be satisfied in
case of Further Public Offer
• Minimum 50 investors at the IPO Stage and no continuous
requirement of minimum shareholders.

10. BSE Eligibility Norms
Net Tangible Assets  At least Rs. 1 Crore as per latest
audited financial results
Net Worth (Excluding  At least Rs. 1 Crore as per latest
Revaluation Reserve) audited financial results
Track Record of  At least 2 years out of immediately
Distributable Profits preceding 3 financial years (financial
in terms of Section year to be of 12 months) (Excluding
205 of Companies Extraordinary Income)
Act, 1956
Other Requirements • Post Issue Paid up capital of at least
Rs. 1 Crores
• Mandatorily DEMAT trading facility
• Website

11. Chapter XB of the SEBI (ICDR) Regulations
……..contd.
Filing of Offer Document  No requirement of filing of draft Offer
and Due Diligence document with SEBI, in case filing of offer
Certificate document through Merchant Banker.
 Filing is to be done with SEBI only for record
purposes.
 SEBI not to issue any Observations.
 Filing of Due Diligence Certificate and
additional confirmations along with offer
document, by the Merchant Banker to SEBI

12. Chapter XB of the SEBI (ICDR) Regulations
 In case of issue by a listed issuer in accordance
Migration with the provisions of this chapter, it shall migrate
the existing securities to the SME Exchange
 Post – issue face value less than Rs. 25 Crores
then, may migrate to SME Exchange if:
 Approved by Special Resolution through Postal
ballot
 Votes cast by Shareholders other than promoters
in favour to at least two times the number of votes
cast by shareholders other than promoters against
the proposal
 Fulfills the eligibility criteria as laid down by SME
Exchange

13. Chapter XB of the SEBI (ICDR) Regulations
 Post issue face value more than Rs. 10 Crores and upto Rs. 25
Migration Crores may migrate to main boards if:
 Approved by Special Resolution through Postal ballot
 Votes cast by Shareholders other than promoters in favour to at least two
times the number of votes cast by shareholders other than promoters
against the proposal
 Fulfills the eligibility criteria as laid down by main Board
 In a case, where the Post issue face value is likely to increase
beyond Rs. 25 Crores by virtue of right issue, bonus issue,
preferential issue etc., then it shall migrate to Main Board subject to
fulfillment of eligibility criteria laid down by the Main Board
Provided no further issue of capital be made unless:
 The shareholders approval by way of special resolution through postal
ballot
 Votes cast by Shareholders other than promoters in favour to at least two
times the number of votes cast by shareholders other than promoters
against the proposal
 The issuer has obtained in principle approval from the main board

14. Chapter XB of the SEBI (ICDR) Regulations
Obligations and  The issue shall be 100% underwritten.
 Merchant Bankers shall underwrite atleast 15 %
Functions of of the issue size in their own account.
Merchant Bankers  The issuer in consultation with the Merchant
Banker may appoint underwriters.
 Merchant Banker may enter into an agreement
with the nominated investor(s) indicating the
number of securities which they agree to
subscribe at issue price.
 Obligation of Merchant Banker to fulfill
underwriting obligations in case of failure of
other underwriters.

15. Chapter XB of the SEBI (ICDR) Regulations
 Merchant Banker to be responsible for minimum 3
Obligations and
years market making through a Stock Broker who is
Functions of registered as market maker with the SME Exchange
 May enter into an agreement with nominated investors
Merchant Bankers
for receiving or delivering securities subject to prior
approval of SME Exchange
 Minimum inventory of Market maker to be 5 %
 Merchant Banker/s with responsibility of market making
at their option, be represented on the Board of the
Issuer subject to the agreement.
 Complete particulars of any transaction for
acquisition of securities made in pursuance of
underwriting or market making shall be submitted
to the Board on quarterly basis.

16. Chapter XB of the SEBI (ICDR) Regulations
Market •Market makers are required to provide
maker two way quotes for 75% of the time in a
Obligations day
•There can not be more than 5 market
makers for a scrip
• During the compulsory market making
period the promoter holding shall not be
eligible for offering to market makers
•Market makers allowed to deregister on
one month’s notice
•Trading system may be either order-
driven or quote driven

17. Model Equity Listing Agreement  Applicability of sub-clause (iv) of clause (b)
of proviso to Sec. 219 of the Companies
Act, 1956 i.e. a statement containing the
salient feature of all the documents can be
sent to shareholders instead of a full Annual
Report
 Submission of Half Yearly Results instead
of Quarterly Results
 No requirement of Publishing of Financial
Results

18. Model Listing Agreement
Obligations and  Fairness Opinion on valuation of
Functions of assets/ shares done by valuer of
Merchant bankers the issuer, required from a
Merchant Banker in case proposed
resolution u/s 393 or u/s 100 of the
Companies Act, 1956

19. Benefit of listing at SME Exchange
Equity Financing Opportunities  Growth of Business
 Expanded Investors Base
Enhancement of Company’s  Market Coverage
Visibility  Increased Value of the Shares
 Venture Capital Participation
 Exit Options

20. Distribution of Risk • Eligibility for Transfer of Risk
Increased Financing  Funds from Banking as well as
Capital Markets
 Diversification of Resources of
Finance

21. Liquidity for Shareholders
Becoming a listed public limited company establishes a market for a
company's shares, providing its investors with an efficient and regulated
vehicle in which to trade their shares. Greater liquidity in the stock market can
lead to better valuation of shares than would be seen through private
transactions.
Facilitate Growth Through Strategic Investments, Mergers And
Acquisitions
• Listed SMEs are more likely to get strategic investments from both, domestic
and international investors as well as companies
• As a listed public limited company, it’s shares can be utilized as an
acquisition currency to acquire target companies, instead of a direct cash
offering. Using shares for an acquisition can be a cost- effective vehicle to
finance such a transaction.

22. Other Aspects
 Transparency, Efficiency and Liquidity
 Involvement of Market Participants
 Minimum Regulation and compliance requirements
 Attraction to high Net Worth Investors

23. SME Exchange - Attributes
 Membership to the Existing Members
 Trading based on Quote/ Order/ Hybrid
 Dealers Market
 Based on Automatic Order Matching
 T + 2 Rolling Settlement Period
 DEMAT connectivity
 Trading System based on BSE Online Trading System
(BOLT)
 Quotes by market makers and orders by investors

24. SME Exchange: Key Players
 Venture Capital Funds/ Banks/ Registrars/ Qualified
Sponsors/ Merchant bankers/ Market Makers
 Cells for Technical & Non technical queries
 Time to time mock trading
 Advisory:
o Preparation of Balance Sheets
o Timely Filling of Listing Requirements
o Offering Process whether IPO or Private Placement

25. SME EXCHANGE & THE
COMPANY SECRETARY!!

26. BOARD OF
DIRECTORS
DIR A DIR B DIR C DIR D DIR E
COMPANY POLICIES
INVESTORS CUSTOMERS
SUPPLIERS COMPANY GOVERNMENT AND
EXTERNAL STAKEHOLDERS
SECRETARY REGULATORS
LENDERS SOCIETY
DEPARTMENTS IN A COMPANY
CORPORATE FINANCE AND HUMAN CORPORATE PRODUCTION INFORMATION
LEGAL MARKETING
PLANNING ACCOUNTS RESOURCES COMMUNICATION OPERATIONS
AND TECHNOLOGY
OPERATIONAL PLANNING AND EXECUTION

27. SKILLS OF A COMPANY SECRETARY…….
Knowledge
of Securities &
Other Laws
Communication
Skills Leadership
Entrepreneurship

28. ROLE IN A LISTED COMPANY
Vigilance
Officer
Event
Manager
Face of
Management
Strategic
Planner
COMPANY SECRETARY
Keypoint between navigates the
Company & CORPORATE GROWTH
Stakeholders
with
Knowledge of GOOD GOVERNANCE
Various Securities
Laws

29. COMPANY SECRETARY & SME
Approvals Due Diligence Appointment
Required & Compliance of
Intermediaries
By Company By
Intermediaries
Promoters
Eligibility Contents of Pricing of Disclosures
Norms Prospectus securities
Compliance of
various Rules & Post Issue
obligations
Migration
Regulations

30. ROLE IN AN UNLISTED COMPANY
Unlisted
Company
SME
Listed
Company
Object :
SME IPO

31. AS PRACTISING COMPANY SECRETARY
As As As
PCS Advisor Represen
tator
Brokers Audit
Securities
Certifications
Audit Appearance
as per Listing
 Corporate before :
Agreement
Restructuring  SEBI
Certifications
 Capital  SAT
required for
Restructuring  CLB
Corporate
 Unlocking  Consent Orders
Actions
company’s real
value

32. Thank You…
Corporate Professionals Capital Pvt. Ltd
SEBI Registered Category I Merchant Banker
D-28, South Extension -I,
New Delhi-110 049
Ph: +91.11.40622200; FAX: +91.11.40622201
Contact: Anjali Aggarwal
Mobile: + 91 9971673336; Tel: +91.11.40622230
Email: anjali@indiacp.com