SEBI Set to Introduce Stricter Rules for SME Post-Listing Obligations and Disclosures
The Securities and Exchange Board of India (SEBI) is preparing to introduce stricter regulations concerning post-listing obligations and disclosures for Small and Medium Enterprises (SMEs). This move comes on the heels of tightened rules for listing and eligibility of SME public issues, as reported by sources.
In the coming weeks, the Obligations and Disclosure Requirements (LODR) Regulations will be revised to implement tighter disclosure norms for SMEs listed on dedicated stock exchanges. This initiative is in response to the recurring incidents of irregularities, non-compliance, and manipulations within the SME ecosystem. A regulatory source noted, “The LODR side of regulations will be out soon to further rein in SME manipulations. The ecosystem — including companies, merchant bankers, auditors, and even exchanges — is still weak in terms of investor protection and needs more safeguards.”
Earlier this month, SEBI also revised the Issue of Capital and Disclosure Requirements (ICDR) norms, which included significant changes such as doubling the minimum application size to two lots, enhancing oversight on fund utilization, and restricting the use of IPO proceeds for repaying loans to related parties.
Tighter Governance and Stricter Norms
The final changes may incorporate stricter regulations for related-party transactions (RPTs), enhanced disclosure requirements regarding board composition and meetings, along with a shift towards quarterly reporting. This alignment aims to bring SME companies more in line with the governance standards expected of mainboard listings.
Under the proposed revised RPT norms, transactions exceeding 10 percent of annual consolidated turnover or ₹50 crore (whichever is lower) will necessitate prior approval from shareholders. The intent behind this change is to enhance transparency, mitigate the risk of fund siphoning, and ensure stakeholders receive comprehensive information on such transactions.
SEBI is also deliberating the mandatory disclosure of board meetings, their composition, and committee proceedings — including details such as the date and number of directors present — for SME-listed entities. Presently, mainboard companies that meet certain financial thresholds, specifically a paid-up capital of over ₹10 crore or a net worth exceeding ₹25 crore, must report these details in their corporate governance compliance filings. However, SMEs are expected to follow suit and file reports quarterly in XBRL format to the exchanges.
Moving Towards Quarterly Filings
Additionally, SEBI is considering aligning other periodic filings, including shareholding patterns, statements of deviations or variations, and financial results, with the requirements for mainboard companies. This change proposes to transition from the current semi-annual reporting requirement to a quarterly basis.
As noted by another source familiar with the discussions, “Quarterly disclosures, such as financial results and deviation statements, would improve transparency and encourage better governance, even if they add to the compliance burden.” Currently, SME-listed entities are required to file these reports semi-annually. The expected changes aim to bolster risk assessment and enhance informed decision-making for investors.
In summary, the imminent regulatory changes by SEBI reflect a strong commitment to reinforcing investor protection and promoting greater transparency within the SME sector.