NSE Tightens SME Listing Norms to Improve Fund Raising Quality

The National Stock Exchange (NSE) introduced additional eligibility criteria for listing small and medium enterprises (SMEs) on August 22. The positive free cash flow (FCF) to equity for at least two out of the three financial years is a new mandatory condition added by NSE. 

“The company/entity should have positive free cash flow to equity (FCFE) for at least two out of three financial years preceding the application,” said NSE in a circular. 

The condition by NSE to make listing of SME more stringent has come at a time when certain entities allegedly engaged in fraudulent practices and manipulation in the financial statements. 

The circular released by NSE said, “...additional criteria will be applicable for all DRHPs filed on or after 1st September 2024.” It added that all the figures will be considered from the audited balance sheets. 

Emerge platform was initiated by the NSE in 2012 to help emerging businesses raise equity capital. SME gets listed on Emerge initially and upon fulfilling criteria laid down by NSE can move to the mainboard. "These companies have the potential to unlock value and emerge on a bigger stage,” according to Investment Opportunities in Emerging Companies document by NSE. 

Within just 12 years of the platform, it has a listing of nearly 500 SME companies as of July.  

Last month, some SMEs on the listing day saw a surge in the prices as high as 200 per cent. Following the NSE imposed the condition that the opening price for a SME stock on the platform cannot be more than 90 per cent of the issue price. 

“To standardise the opening price discovery/equilibrium price across exchanges during special pre-open session for initial public offer (IPO) for the SME platform, it has been decided to put an overall capping up to 90 per cent over the Issue price for SME IPOs,” said NSE in a circular.