SEBI Chairperson Raises Concerns Over Manipulation in SME Segment
Madhabi Puri Buch, SEBI’s representative, mentioned that market participants are aiding the regulator in recognizing fraudulent activity patterns.
On March 11, SEBI Chairperson Madhabi Puri Buch stated that the market regulator has observed indications of manipulation within the SME segment.
During an Association of Mutual Funds (AMFI) event in Mumbai on March 11, the Securities and Exchange Board of India (SEBI) chairperson remarked, “We observe indications of manipulation within the SME (small and medium enterprises) segment.”
Apart from possessing the technology to detect patterns indicative of manipulation, the regulator has also garnered input from market participants regarding the identification and management of fraudulent activities, she stated.
Buch further mentioned that, despite receiving these inputs, the regulator has not yet taken action because it is endeavoring to build a strong case in a thorough manner.
As per the Sebi Chairperson, the regulator aimed to create a listing environment for SMEs that is more supportive and less regulated compared to the mainboard. This approach recognizes that SMEs might face difficulties in adhering to the stringent requirements applicable to mainboard companies.
She said, “The objective (of Sebi) was appropriate”.
Nevertheless, the market regulator received feedback indicating that certain entities were abusing this supportive framework.
To address this issue, SEBI initially implemented measures such as Additional Surveillance Measure (ASM) and Graded Surveillance Measure (GSM), which were previously not enforced on the SME board.
However, Buch believes that the fact remains that these are relatively small entities with small market capitalization and free float, making their prices relatively easier to manipulate both during the IPO phase and in trading.
To address this issue, Buch emphasized the importance of increased disclosure regarding risk factors. She stated that the regulator is considering implementing disclosure requirements as an initial measure for SME IPOs.
The SEBI chairperson mentioned that the regulator is actively gathering evidence of stock price manipulation both during IPOs and trading. “We have observed certain patterns. However, in accordance with our regulations, we need to carefully construct the entire case, which requires some time to ensure its robustness,” she explained.
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