India's market regulator ramps up scrutiny on SME trading platforms

India's market regulator, the Securities&Exchange Board of India (SEBI), is ramping up its scrutiny on trading platforms for small and medium enterprises (SMEs), a move reached after a surveillance meeting involving exchanges and the regulator on Tuesday. The decision comes amid concerns about potential stock-price manipulation within the SME segment, which has seen significant retail interest lately.

Both BSE Ltd. and the National Stock Exchange of India, two of the country's major exchanges, have extended their short-term surveillance rules to include companies listed on their SME platforms in response to these concerns. This initiative is an expansion of a surveillance framework initially established by these exchanges in 2018 for stocks listed on their primary boards. The framework was designed to safeguard investors' interests through measures such as narrowing price bands, increasing margins, and transferring securities to a trade-to-trade group, requiring immediate delivery to limit speculation.

This increased oversight comes even as India's SME IPO Index, consisting of 63 members, has significantly outperformed the country's main equity indices. Since the end of 2019, the SME IPO Index has surged by approximately 1,900%, far surpassing the 59% rise in the BSE Sensex Index.

In terms of activity within this sector, around 135 SME companies have made their market debut this year, with another 20 anticipated to follow suit, according to data available on exchange websites.

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