BSE Ltd, Asia’s oldest stock exchange, has begun betting big on its trading platform for small and medium enterprises (SMEs), and expects about 30 companies to be listed on the SME Platform by March 2013.
In an exclusive interview to Entrepreneur magazine, BSE Managing Director and CEO Ashish Chauhan said the exchange already had 12 companies listed on the SME Platform, while six draft red herring prospectuses (DRHP) were already filed. Another 12 companies more were in the pipeline, he said, adding that he expected that by March there was a possibility that the total number of listings would go up to 30.
“We started in March 2012 and have also launched the BSE SME IPO Index which measures the returns given by these companies since listing,” he said, adding that the companies have turned in returns of around 34 percent since then, showing that their market performance was also robust.
Chauhan said the BSE was very keen to take the SME Platform initiative – started at both BSE and its rival National Stock Exchange last year – forward in a big way since the SME sector was vital for job creation.
The SME Platform, he explained, has a minimum lot size of Rs 1 lakh, owing to which only larger, serious players who understand the risks associated with this segment come in as investors.
This, in turn, benefits the segment since these players understand what they are trading in. There is also two-way compulsory market making mandated for this segment by the Securities & Exchange Board of India (Sebi) and these quotes are now measured automatically on a continuous basis. This adds depth to the market.
Explaining why the SME Platform has so far done well as opposed to the earlier experience of the OTC Exchange of India – an earlier experiment for smaller companies – Chauhan said since the SME Platform was a part of the overall BSE framework, companies which got larger could always move to the ‘main board’ of the bourse. This option wasn’t available at OTC and so investors prefer the SME Platform now.
Besides, brokers dealing in the Platform do not have to spend on infrastructure for a separate system and can just plug it on to the main BSE Online Trading (BOLT) network, making it easier and cost-effective for them. Only market makers need a separate system.
Calling the SME sector an ‘engine of job growth’, Chauhan said job growth in the SME segment was at a faster clip than in the organised sector, and hence it was imperative that this segment got the necessary push from policy.
(Read the full interview with BSE MD and CEO Ashish Chauhan in the latest issue of Entrepreneur. Now on stands)