India’s market regulator is considering an overhaul of rules governing the small and medium enterprise (SME) market, including removing rules that restrict listings and make shares in the segment easier to trade.
The review comes as the Securities and Exchange Board of India (Sebi) grapples with a market-making framework that has failed to deliver enough liquidity while adding costs for companies, and with trading rules that can leave investors holding shares they cannot easily sell.
“The market-making framework is not working properly. And the cost is increasing due to that market-making. The underwriting system is not working. And it should be given a lot of cost. So it is becoming more costly than the main board,” Sebi chair Tuhin Kanta Pandey said at an event on Wednesday.
Under the market-making framework, designated intermediaries are required to continuously provide buy and sell quotes for a stock, helping support liquidity and smoother trading.
The changes are being considered as part of a thematic review of the SME framework. At its board meeting in June this year, Sebi approved an assessment of the framework for capital raised by SMEs in the Indian stock market for fiscal year 2027 (FY27). The Union Budget for FY26 had first announced measures to assess the impact of existing regulations.
The review comes after a sharp expansion in the SME market. SME initial public offerings (IPOs) raised a record ₹10,955.1 crore in FY26, up from ₹9,119.9 crore in FY25. Activity has remained strong in recent months, with 17 SME companies raising ₹733 crore in May alone, after a softer April.
Sebi is also looking at how SME shares trade after listing. Pandey said that the creation of odd lots has made it difficult for investors to trade their holdings, pointing to possible changes to lot sizes or the trading framework.
“We have seen that odd lots have been created. Because of this, the investors who have come there are not able to trade,” Pandey said.
An odd lot is a quantity of shares smaller than the standard trading lot, which can make buying or selling the shares more difficult.
Another potential change being considered is rules linked to paid-up capital. Pandey said transactions under the existing framework had been linked to paid-up capital and that this linkage “needs to be de-linked”.
“So we will bring a comprehensive reform proposal. A consultation paper will be issued for that,” Pandey said.
