SME IPO Intermediaries: Roles & Responsibilities Explained

1. SEBI – The Regulatory Authority

The Securities and Exchange Board of India (SEBI) is the primary regulatory body overseeing the securities market in India. It defines the legal framework and guidelines for all IPO-related activities.

Role in SME IPOs:

• SEBI ensures that all intermediaries comply with securities laws.
• Unlike Mainboard IPOs, SEBI approval is not mandatory for SME IPO prospectuses. Instead, the stock exchanges review and approve the documents.

2. Stock Exchange – The Trading Platform

India has two key national stock exchanges:

• BSE (Bombay Stock Exchange) with its SME platform called BSE SME
• NSE (National Stock Exchange) with its SME platform NSE Emerge

Role of Stock Exchanges in SME IPOs:

• Review and approval of IPO application and Draft Red Herring Prospectus (DRHP)
• Facilitate the bidding, allocation, and listing processes
• Provide the platform for trading listed SME shares

3. Merchant Banker (Lead Manager) – The IPO Strategist

The merchant banker or lead manager is the most critical intermediary hired by the issuing company. They are responsible for end-to-end execution of the IPO.

Key Responsibilities of the Merchant Banker:

a. IPO Advisory

• Guides the issuer through IPO eligibility, capital requirements, SEBI regulations, and post-listing needs.

b. Due Diligence

• Collects and verifies documents like audited financials, board approvals, tax records, assets, liabilities, and promoter information.
• Ensures the issuer meets the eligibility criteria such as:
  • Tangible assets of ₹1.5 crores
  • Profit and net worth for at least 3 years
  • Post-issue capital not exceeding ₹25 crores

c. IPO Structuring

Plans the IPO structure in collaboration with the issuer. This includes:

• Type and number of securities
• Lot size, par value, and pricing
• Investor categories: anchor, retail, institutional, non-institutional
• Booking window and reservation quotas

d. Appointing Other Intermediaries

Coordinates with SEBI-registered intermediaries such as:

• Registrars to the issue
• Bankers
• Legal advisors
• Market makers
• Compliance officers

e. Drafting of Legal Documents

Prepares key IPO documents such as:

• Tripartite agreement with NSDL, CDSL, and registrar
• Underwriting and market making agreements
• Board/shareholder resolutions and declarations
• Filing forms for SEBI, Stock Exchange, RoC

f. Preparation of Prospectus

Drafts the DRHP, which includes:

• Company background and financials
• Risk factors
• Industry overview
• Offering structure and timeline
• Legal and regulatory disclosures

g. Filing DRHP with SEBI, Stock Exchange, RoC

• Submits the DRHP for review and in-principle approval
• Ensures the RoC (Registrar of Companies) issues the final clearance

h. Underwriting

• By law, SME IPOs must be 100% underwritten
• Merchant banker underwrites at least 15%; the remaining 85% can be assigned to third-party underwriters

i. Roadshows and Marketing

• Conducts SME IPO roadshows for investor awareness
• Organizes one-on-one or group meetings with potential investors
• Presents company’s business model, financials, and IPO terms to institutional and retail investors

j. Post-Issue Compliance

• Oversees final listing of shares
• Ensures all regulatory filings and compliance measures are completed post-listing

4. Chartered Accountant (CA)

A Chartered Accountant (CA) is crucial in ensuring financial transparency and regulatory compliance during an SME IPO.

✅ Role of CA in SME IPOs:

• Conducting financial due diligence
• Forecasting and valuing the business
• Auditing and certifying restated financial statements
• Issuing a Statement of Tax Benefits
• Certifying the Object of the Issue
• Ensuring compliance with all disclosure norms

🔎 Note: The CA prepares and certifies financials, while the Merchant Banker supervises the overall process.

5. Company Secretary (CS)

A Company Secretary (CS) provides corporate governance and legal structuring advice throughout the IPO journey.

✅ Role of CS in SME IPOs:

• Advising on capital and corporate restructuring
• Reporting group company details
• Highlighting litigation and material changes
• Ensuring compliance with SEBI LODR
• Verifying brokerage and securities audit
• Meeting listing agreement obligations

6. Registrar

Registrars and Transfer Agents (RTAs) play a pivotal role in data processing, record-keeping, and IPO application handling.

✅ Role of the Registrar in SME IPOs:

• Coordinate with CDSL/NSDL for ISIN generation
• Assist in dematerialization of shares
• Help draft the IPO application and process flow
• Collect and reconcile IPO applications from exchanges and intermediaries
• Reject mismatched or invalid bids
• Finalize Basis of Allotment and allotment list
• Process ASBA data, unblock funds, and enable share credit
• Issue refunds in case of IPO failure
• Provide post-issue reports and investor grievance redressal

🔎 Designated Intermediaries include SCSBs, brokers, and RTAs who assist in application collection and validation.

7. Legal Advisor

A Legal Advisor conducts legal due diligence to ensure that the SME and its stakeholders meet IPO eligibility criteria.

✅ Responsibilities of Legal Advisors:

• Drafting and reviewing legal documents
• Offering legal opinion and advice
• Ensuring compliance with all applicable laws
• Verifying legal ownership, disputes, and contracts
• Drafting dispute resolution procedures
• Monitoring implementation of legal clauses

8. Banker to the Issue

The Banker manages the flow of funds from investors to the company during the IPO.

✅ Role of Banker in SME IPOs:

• Sending UPI/payment instructions to investors
• Coordinating with Registrars and SCSBs
• Validating fund transfers
• Ensuring timely fund clearance for allotment finalization
• Transferring collected funds to the public issue account

9. Market Maker

Market Makers help ensure liquidity in SME stocks post-listing through two-way quotes, which improves price discovery.

✅ Key Functions of Market Makers:

• Providing 2-way quotes (buy/sell) for 75% of the trading day
• Ensuring execution at specified quotes
• Maintaining sufficient stock inventory
• Not purchasing shares from promoters
• Active for a minimum of 3 years post-listing
• Not more than 5 market makers per issue

📌 Note: At least 5% of IPO shares are reserved for market makers. They are also paid in advance for their services.

10. Underwriter

An Underwriter guarantees the subscription of shares in the SME IPO, taking on the risk of unsold shares.

✅ Role of Underwriters:

• Ensuring 100% IPO subscription
• Purchasing any unsubscribed shares
• Covering at least 15% of the IPO
• Participating in IPO marketing, roadshows, and valuation
• Advising the issuer on issue structure and pricing

11. Other Intermediaries

🔹 Grading Agency

Although not mandatory for SMEs, a grading agency assesses the IPO’s fundamental strength. They provide credibility to investors and may improve investor confidence.

🔹 Advertising / PR Agencies

These agencies enhance visibility through:

• IPO awareness campaigns
• Conducting roadshows and outreach
• Publishing ads and official notices in media

✅ Conclusion

A successful SME IPO relies on the synergy of regulatory, financial, legal, and marketing intermediaries. Careful selection and coordination of these players is vital for regulatory compliance and investor trust.