Curated By: Business Desk
Last Updated: October 13, 2023, 18:58 IST
SME IPO price manipulation is done for a premium listing of the stock.
Market regulator SEBI has raised concerns regarding the unprecedented volatility in the value of SME IPOs and stocks.
SME IPOs are in the spotlight currently after two regulatory reforms by market watchdog Securities and Exchanges Board of India (SEBI). In September, 37 small and medium enterprises (SMEs) went public raising over Rs 1,000 crore through initial public offerings (IPOs), according to Moneycontrol. However, on September 25, SEBI included SME stocks under the Additional Surveillance Measures (ASM) and Trade-to-Trade Settlement (T2T) due to concerns about price manipulation and irregular trading volumes.
There is a significant potential for manipulation both in SME stocks and SME IPOs. Therefore, it’s advised that whenever you consider investing in an SME IPO, be sure to conduct thorough research.
History of SME Platforms in India
The National Stock Exchange (NSE) and BSE launched the NSE Emerge and BSE SME, platforms respectively, in 2012. The objective was to provide smaller companies with an opportunity to raise funds from the open market. On these platforms, small and medium-sized companies can get listed and raise the necessary capital for their businesses. However, today, many SME IPO promoters reportedly use the platforms as a means to hike stock prices and then sell them with the help of operators. According to experts, they often collaborate with operators to execute this practice, with retail investors suffering the most losses.
How does the stock manipulation strategy work?
According to a Moneycontrol report, for this manipulation, the entire IPO subscription process is manipulated. Thousands of applications are submitted in an SME IPO. In this process, a big operator is involved and they have a network of more than 50 smaller operators. These operators focus on increasing the IPO’s subscription. This manipulation is undertaken as it increases the likelihood of getting a listing premium. Main operators assist small operators in this work. Thereafter, promoters give a significant share of the profit to the main operators. In contrast, small operators receive commissions of up to 20 per cent.
In this way, applications are submitted to increase the IPO’s subscription. A deal is cracked with small operators for each application, typically in the range of Rs 10,000 to Rs 15,000. The applicant sells their application to the operator and takes the money from the deal. Most notably, regardless of whether the IPO is listed at a premium or a discount, they receive the predetermined amount. However, any gains from premium listings are not passed on to the applicant. Conversely, the operator gets the amount agreed upon earlier, which is generally higher than the bidding amount of the applicants.
