Sebi Plans Full Review of SME IPO Framework; Flags Trading, Market-Making and Cost Concerns

Last Updated:August 20, 2026, 11:01 IST

Sebi is also reviewing the market-making mechanism for SME-listed companies.

Sebi’s SME Listing Framework.

The Securities and Exchange Board of India (Sebi) is preparing a comprehensive review of the regulatory framework governing small and medium enterprise (SME) listings, with the capital markets regulator identifying several issues related to trading, market-making, underwriting, migration and costs on the SME platform.

Sebi Chairman Tuhin Kanta Pandey, speaking to the media on the sidelines of the 23rd FICCI Capital Markets Conference 2026 in Mumbai on August 19, said certain provisions of the existing framework could be restricting the growth of companies listed on the SME platform.

“There are certain things about the SME framework which are actually curbing the organisations and enterprises that are on the SME platform. They are curbing their growth, and there are difficulties in their trading as well,” Pandey said.

One of the key concerns relates to the creation of odd lots, which can make it difficult for investors to buy or sell SME shares. “You have seen that odd lots have been created, because of which investors who have come into them are not able to trade,” the Sebi Chairman said.

Pandey said the decision to increase trading lots and application sizes was aimed at limiting retail participation in the SME segment. However, he said the measure has not delivered the desired outcome. “The thought was that if we increase the trading lot and increase the application size, we would be able to control retail participation, but that is not happening,” he said.

Sebi flags market-making, underwriting issues

Sebi is also reviewing the market-making mechanism for SME-listed companies. According to Pandey, the existing system is not functioning as intended, while the costs incurred by market makers have continued to rise.

Underwriting is another area that the regulator wants to examine. Pandey said the current underwriting system is not working effectively and is resulting in significant costs for companies.

The regulator is also concerned about the cost burden on companies listed on the SME platform. Pandey said SME-listed firms can face substantially higher costs compared with companies listed on the mainboard. “So, if someone is on the SME platform, obviously we do not want them to incur higher costs. But the cost is significantly higher compared with the mainboard,” he said.

SME migration rules also under review

Sebi is also looking at the rules governing migration of companies from the SME platform to the mainboard. Pandey said some of the existing requirements are linked to paid-up capital and may need to be reconsidered.

“There are also issues with migration, and there were many things where capital was linked to paid-up capital. That also needs to be delinked, and needs to be thought about afresh,” he said.

The regulator intends to address the various concerns through a broader reform exercise. “So, we will bring a comprehensive reform proposal. A consultation paper will be issued for that,” Pandey said.

Sebi to release detailed F&O study

Separately, the Sebi Chairman said the regulator will publish a more detailed study on futures and options (F&O) trading based on data for financial year 2025-26. The study will provide a deeper analysis of participation in the derivatives market, including retail and non-retail investors. It will examine trends across different categories of market participants and assess the impact and effectiveness of measures introduced by SEBI.

Sebi looks to ease global fund management rules

Sebi is also working on measures aimed at making India more attractive as a base for global fund management activities. Pandey said several changes have already been made in tax laws, although certain regulatory issues relating to portfolio management services (PMS) remain.

He said Sebi has proposed changes through a consultation paper that could ease some of these requirements and potentially encourage more global fund management activity from India.

The proposed changes to the SME framework, along with the review of F&O participation and efforts to simplify rules for global fund management, are part of Sebi’s broader efforts to refine market regulations while addressing concerns around participation, costs and market efficiency.

Key Questions Answered

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How will SEBI’s review impact small businesses seeking IPOs?

SEBI’s review of the SME IPO framework could restrict the growth of small businesses seeking IPOs if certain existing provisions, such as those linked to paid-up capital, are not reconsidered. The review aims to address concerns related to trading, market-making, underwriting, migration, and costs on the SME platform.

What changes could make India a global fund management hub?

India could become a global fund management hub by simplifying its foreign investment regime, making it more principle-based and easier to navigate. Measures to attract foreign capital and deepen capital markets are also being considered. Additionally, easing global fund management rules and addressing regulatory issues related to portfolio management services could help.

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