SME Stock Exchange in India
SME Stock Exchange in India
Stock market investing offers a wide range of options. It offers more possibilities than buying and selling shares in the secondary market. There are many different options available, apart from the well know stock exchanges – trading shares of listed companies. There is the Initial Public Offer (IPO) or primary market, the derivatives segment and recently the latest Small-Medium Enterprises (SME) exchange. For the confident investors looking for newer and more gainful options, the SME exchange can prove to be a superior platform. In this article, we review the SME Stock Exchange in India, the need for a SME Stock Exchange, procedure for trading on SME Exchange and important trading guidelines.
Features of Small and Medium Enterprises
Typically, companies list their shares on the exchange in the primary market by means of an Initial Public Offer (IPO). This mostly includes large corporates. Nevertheless, some small and medium enterprises have a capacity for providing superior return for investors. Further, certain investors that have superior knowledge of assessing the risk of a SME are also interested in investing in SMEs that match their risk appetite. To match such investors with investees, both NSE and BSE have created separate SME stock exchanges in India. The BSE refers to it SME exchange, while the NSE exchange is termed ‘Emerge’.
Listing Requirement for SMEs
In the case of normal stock exchange, there are thousands of companies listed. However, the number of listings on the SME exchange are limited, as awareness is just increasing. Furthermore, the SME stock exchanges have entry restrictions such as positive net worth and cash flows for two years before the process of listing. In addition, companies, which had once applied for winding up or restructuring, are not permissible to list on the exchange. These restrictions help protect investors from additional risk and ensure that listed SMEs are legitimate.
Trading in SME Stock Exchange
Trading on the SME stock exchange is almost like buying and selling on the BSE or NSE. It does not necessitate any extra procedures. Nevertheless, some trading rules are different. The SME exchange has a larger size than normal lot size– the least number of shares you can buy or sell in each transaction. You are not permitted to trade amounts lower than Rs 1 lakh. Also, the lot size varies according to price of the stocks. For instance, on the NSE Emerge, if the stock price is found to lower than Rs 14, then the lot size is 10,000. Nevertheless, if the stock price is observed between Rs 120-Rs 150, then the lot size is found to fall to 1,000.
Also, shares on the SME exchange can be bought and sold either in the continuous market or in the call auction market. Similar to the normal cash segment, these shares fall into categories like the ‘rolling settlement’, ‘block trading window’, ‘ odd lot trading’ and so on. Furthermore, you can place both market as well as limit orders just like a normal trade. These can be customized and cancelled until the order is processed. Once settled, the shares will be delivered in T+2 days.
Liquidity in SME Exchange
Some caution should be exercised while trading on the SME exchanges in India. First of all, investors should be aware that the risk factor is quite high during the process of investing in small and medium sized companies. While they are competent of giving really great returns they also have a higher than average probability of being affected. Hence, it is important to be well researched. Also, liquidity is lower in the SME exchanges, when compared to the regular exchange. Some orders may not find a matching buyer/seller right away. Hence, its important for investors in the SME stock exchange to be long-term investors.