SEBI Reviews LODR and SME IPO Frameworks to Modernize Markets

The Securities and Exchange Board of India (SEBI) is conducting a simultaneous review of the Listing Obligations and Disclosure Requirements (LODR) and the SME IPO framework. Chairman Madhabi Puri Buch outlined the plans at the Financial Express Modern BFSI Summit in Mumbai. The regulator aims to modernize capital markets and simplify fundraising for small and medium enterprises. This push comes as India's market capitalisation has grown nearly fivefold over the past decade to Rs 472 lakh crore, supported by more than 15 crore unique investors and mutual fund assets of Rs 83 lakh crore.

Madhabi Puri Buch stated the broad objective. "We are undertaking a comprehensive review of the Listing Obligations and Disclosure Requirements (LODR) framework to make it more contemporary and streamlined," she said. This effort is part of a wider drive to simplify compliance and improve the ease of doing business while maintaining investor protection. SEBI has already discontinued 52 overlapping mutual fund reports and simplified compliance for stockbrokers. Penalties across exchanges have been rationalized.

Technology is a key focus. SEBI is developing a framework for Fixed Income Channel Partners to widen retail bond market participation. It is also working on Demat 2.0, which will use distributed ledger technology for tokenised corporate bonds, with a second phase enabling secondary-market trading. An AI Sandbox for testing financial market applications is being explored, and working groups are building a technology roadmap for market infrastructure institutions.

Other areas under review include frameworks for short-selling and Securities Lending and Borrowing. SEBI has proposed net settlement of funds for mutual fund schemes. For foreign investors, the regulator is looking at simpler digital onboarding, KYC, and documentation, building on existing measures like SWAGAT-FI and digitally signed Powers of Attorney.

SME IPO Framework Overhaul

SEBI has proposed significant changes to the SME IPO framework to help genuine enterprises raise capital while protecting investors. The consultation paper includes measures to simplify application processes and relax eligibility criteria. A key proposal is to reduce the minimum application value to ₹1 lakh, structured as four lots of ₹25,000 each. The minimum number of allottees in a public issue would rise from 200 to 500.

The compulsory market-making requirement for SME-listed firms would be abolished. For migration to the mainboard, a market capitalisation-based framework is proposed. Voluntary migration would be permitted for companies with a market cap of ₹1,000 crore or more but less than ₹4,000 crore. Mandatory migration would apply to those exceeding ₹4,000 crore.

Profitability requirements would be tightened, with the average annual operating profit requirement proposed at ₹3 crore over three years. An alternative route is proposed for issuers not meeting this: if at least 75% of the issue is allocated to Qualified Institutional Buyers (QIBs). If this QIB threshold is not met, the entire subscription money must be refunded.

Trading would be simplified by making the lot size on the SME platform one share, replacing the price-band-based system. For book-built issues, the price band cap should be at least 105% of the floor price, retaining the existing 120% upper limit. SEBI also proposed removing the reference to individual investors applying for the minimum application size in differential pricing provisions. Specific restrictions on offers for sale are proposed to be retained, with shares offered by a selling shareholder capped at 50% of their pre-issue holding, subject to exemptions for QIBs.

Regulatory Modernization Drive

SEBI's reforms focus on enhancing transparency, reducing compliance burdens, and leveraging technology for broader market participation. The regulator has proposed stronger monitoring of IPO proceeds to improve transparency and accountability. Under the GARUDA framework, the timeline for launching alternative investment fund schemes has been cut from 30 days to 10 working days. Eligible funds for accredited investors can launch immediately upon filing.

Madhabi Puri Buch emphasized the dual focus of the SME review. "The regulator is also reviewing the SME IPO framework to help genuine enterprises raise capital while protecting investors," she said. The scale of the SME platform is significant. As of July 31, 2026, 1,496 entities have been listed since inception, raising a total of ₹40,222 crore.

SEBI has invited public comments and suggestions on the SME framework proposals by November 4. The regulator will finalize the proposals after incorporating this feedback.