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