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Published on 26 June 2025

Sebi Reviews SME IPO Market Maker Regulations for Enhanced Liquidity

SEBI’s SME IPO Market Maker Shake-Up: What’s Actually Changing—and Why It Matters

Let’s not sugar-coat it—if you’ve ever dabbled in newly listed SMEs, you know liquidity can vanish faster than a hot stock tip. Some days, it feels like you're the only one at the party. That’s exactly why SEBI is rethinking how market makers work on the SME platform. And frankly, it’s about time.

Why Do Market Makers Even Matter?

Think of market makers as the ones who keep the trading engine humming. Their job? Always be ready to buy or sell shares, so investors aren’t stuck holding a stock they can’t exit—or chasing one that’s impossible to buy. For SMEs, where volumes are thin and interest can be fleeting, this role isn’t just helpful—it’s critical.

What’s Changing?

1. Stronger Net Worth Requirements for Market Makers

Let’s start with a surprising fact: right now, there’s no minimum net worth requirement specific to market makers on SME platforms. That’s despite SEBI requiring at least ₹1 crore for basic trading membership. So yes, technically, even a relatively weak player could step in as a market maker.

SEBI’s looking to tighten this. Under the new proposal, market makers might need anywhere from ₹1 crore to ₹5 crore in net worth—scaled depending on how many IPOs they want to handle.

Translation? No more weak hands. Only well-capitalised players with skin in the game will be able to operate across multiple SME issues.

2. Tougher Penalties for Sitting on the Sidelines

Right now, if a market maker isn’t quoting regularly, the merchant banker is expected to step in and find a replacement. But penalties? They’re there, sure, but not sharp enough to keep the slackers out.

SEBI wants to raise the stakes. Repeat offenders could face bans from taking on new mandates altogether. The message is clear: if you’re not doing your job, you won’t be getting another one.

This matters because reliable quotes = real liquidity. And that’s what keeps investors from walking away burned.

3. Stricter IPO Entry Criteria for SMEs

Earlier this year, SEBI had already put some guardrails in place for SME listings—and those changes are just as important.

  • Profitability Check: No more loss-making hopefuls. SMEs now need at least ₹1 crore in profits in two of the last three financial years to even qualify for listing.

  • OFS Limitations: The Offer for Sale (OFS) portion is now capped at 20% of the total issue, and no individual selling shareholder can offload more than 50% of their holdings.

  • Larger Lot Sizes: Minimum investment sizes have gone up. It’s aimed at discouraging short-term punters and bringing in more serious, longer-horizon investors.

  • Clear Fund Usage Plans: Vague goals like “general growth” won’t cut it anymore. Companies must lay out exactly how they’ll use IPO money.

4. New Lock-Ins and Related Party Restrictions

  • Staggered Lock-In for Promoters: Any shares above the minimum required contribution are now subject to a phased lock-in—half for one year, the rest for two. This keeps promoters accountable post-listing.

  • Tighter Scrutiny on Related Party Transactions: For the first time, SEBI’s bringing SME IPOs under the same microscope as main-board listings when it comes to related party dealings. It’s about time.

5. Limitations on Where the IPO Money Can Go

  • Cap on General Corporate Purposes: No more parking large amounts vaguely. SMEs can use only up to 15% (or ₹10 crore, whichever is lower) of IPO proceeds for general purposes.

  • No More Loan Repayments to Insiders: You can’t use the funds to quietly pay off loans to the promoter group or related parties. That loophole’s closed.

Why Should You Care?

For Investors:

You’re getting a safer playground. Better liquidity, stricter disclosures, fewer shady exits—and more confidence that your money’s not going into a black hole.

For SMEs:

The bar’s higher, yes—but the upside is credibility. If you’re planning a genuine, long-term listing, the system now works in your favour. Fly-by-night outfits? Not so much.

For Market Makers:

If you’ve got the capital and discipline, this is your time. But if you’ve been coasting—offering token quotes or going silent when the stock dips—SEBI’s gunning for you.

Real-World Impact: Case in Point

Take the SME from Pune that had to pull its IPO earlier this year. Their market maker went silent—no quotes, no trades—and investors panicked. Complaints piled up. Under the proposed framework, this would’ve triggered automatic penalties and a quick replacement. That’s exactly the kind of fix SEBI wants to see in action.

The Bottom Line

SEBI’s overhaul isn’t about red tape. It’s about rebuilding confidence—something SME listings have struggled with. By tightening rules for market makers, demanding more transparency from issuers, and cracking down on casual use of public funds, SEBI is making it harder for bad actors to slip through. And for the rest? It’s a cleaner, more stable, more trustworthy market.

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