SEBI SME IPO Proposal (October 14-18): Market Makers Out, a ₹3 Crore Profit Bar In

The SEBI SME IPO proposal is the biggest rethink of the small-company listing market in years, and it cuts both ways. In a consultation paper dated October 14, 2026, the regulator wants to make SME listings cheaper by dropping compulsory market making and full underwriting. In the same breath, it wants to raise the profit bar a company has to clear before it can list at all. Comments are open until November 4, and the debate picked up over the weekend.

What the SEBI SME IPO proposal changes for issuers

Start with who gets to list. Today the test is post-issue paid-up capital: up to ₹10 crore qualifies, and companies between ₹10 crore and ₹25 crore may also use the SME route. SEBI wants to switch to post-issue market capitalisation instead. Issuers valued up to ₹1,000 crore would have to list on the SME platform, and those between ₹1,000 crore and ₹4,000 crore could choose it.

The profit test gets tougher. The current rule asks for operating profit of ₹1 crore in at least two of the three previous financial years. The paper proposes an average operating profit of at least ₹3 crore a year over the preceding three years, based on restated consolidated accounts. Companies that miss that mark get one alternative: a book-built issue where at least 75% of the net offer goes to qualified institutional buyers (QIBs). If that 75% isn’t met, the entire subscription money is refunded.

Underwriting and market making go

Every SME IPO today must be 100% underwritten, and the lead manager has to underwrite at least 15% on its own account. SEBI’s own analysis of prospectuses shows underwriting fees averaged about 49.52% of total issue expenses for NSE SME IPOs in FY25 and 38.41% in FY26. On BSE the figures were 32.20% and 33.99%. Under the proposal, only the unsubscribed portion would need underwriting, as on the main board.

Compulsory market making, which runs for three years with a market maker holding at least 5% of the listed shares as inventory, would be scrapped. The paper’s justification is blunt: between August 2025 and July 2026, market makers accounted for only 0-10% of total turnover in 361 NSE and 268 BSE SME stocks.

Smaller bids, one-share trading

For investors, the minimum application would be halved from ₹2 lakh to ₹1 lakh, made up of at least four lots of ₹25,000 each. After listing, SME shares would trade in lots of one share. SEBI says about 5% of unique PAN-based shareholders currently sit on odd lots they can’t sell through the normal market. We explained how today’s two-lot rule works in our guide to IPO lot size calculation.

Why the timing matters

The segment is no longer tiny. According to the paper, citing NSE and BSE data as of July 31, 2026, 1,496 companies have listed on SME platforms since inception, 365 have moved to the main board and ₹40,222 crore has been raised. Activity is also picking up. BusinessLine reported on October 18, citing B2K Analytics, that SME issuers raised ₹3,791.67 crore in the July-September 2026 quarter, nearly double the ₹1,890.06 crore of the previous quarter, across 80 listings. Of those, 51 listed at a premium, 19 at a discount and 10 at the issue price.

The worry experts raised with BusinessLine is liquidity. Without a market maker, an investor in a thinly traded SME stock depends entirely on finding a real buyer. One-share lots make selling easier on paper, but they don’t create buyers. Business Standard’s report on the paper adds that companies opting into the ₹1,000-4,000 crore band would also need Ind AS restated accounts.

Nothing changes yet. Issues whose RHP or prospectus is filed before the new rules are notified will stay under the old framework. For now, the safer read is that weaker issuers will find it harder to list, and whoever buys SME IPOs will carry more of the exit risk themselves. Our IPO investing guide covers what to check before you bid, and our note on SEBI’s other October measures covers the closing auction changes.

Disclaimer: This article is for information and education only and is not investment advice. Please do your own research or consult a SEBI-registered adviser before making any investment decision.