India's securities regulator, the Securities and Exchange Board of India (SEBI), is considering new rules for public offerings by small businesses, according to sources.

Among the potential changes under discussion are quotas that would reserve a portion of shares for institutional investors ahead of share sales by small firms. The regulator may also raise the listing size limits and profit requirements that these companies must meet.

The proposed adjustments come in response to concerns about the diversion of funds raised through such offerings and the high fees charged in the segment. The changes are aimed at strengthening governance and improving investor protection.

SEBI is the statutory body responsible for regulating India's securities markets, including initial public offerings and the dedicated SME listing platforms operated by the country's stock exchanges. In recent years, small and medium enterprises have increasingly tapped these platforms to raise capital from public investors, drawing regulatory attention to disclosure standards and the use of proceeds.

A larger institutional role would mark a shift for the SME segment, where public offers have typically been dominated by retail and non-institutional investors. Institutional investors, such as mutual funds, conduct detailed due diligence and their participation is often viewed by regulators as a check on aggressive pricing and weak disclosure. Requiring such investors to take a set portion of an offer could therefore act as a quality filter, though it may also make fundraising harder for smaller companies that fail to attract institutional interest.

The move would add to earlier steps SEBI has taken to tighten oversight of SME listings, which have included enhanced disclosure requirements and scrutiny of how proceeds are used. Any final rules would follow SEBI's standard public consultation and board approval process, which typically involves seeking comments from market participants before changes take effect.

Source: Economic Times Markets