How BSE's SME platform turned into a switching money enterprise

Price manipulation is not a new phenomenon. Contrary to what most regulators would want us to believe, it does happen in most markets and the best way to minimise it is to have a market driven by diverse opinions. Along with high liquidity, an opposing point of view acts as a counterforce in preventing price distortion.

But what has come as a shock lately is the blatant rigging that has been happening on the BSE’s SME platform for more than a year. While Outlook Business was nearing closure on a report that we initiated a few months back, Sebi issued an order against four errant companies that were being used as a vehicle to convert black money into white on the SME platform. As the lead story in our latest issue shows, the sordid tale does not quite end there. Not only are unscrupulous entities using this platform to launder money, their rampant manipulation also makes the platform unsafe for unwary investors, as existing valuation has little connection to financial performance.

The BSE SME platform was created with the intention of providing small enterprises a less cumbersome way to access public money. The platform was to help them steer clear of high listing and regulatory costs — typical barriers for budding companies. Though the intention was a step in the right direction, today, the platform is more reminiscent of the regional stock exchanges of yesteryears. Besides competition from the NSE, loose compliance was a major factor responsible for the regional stock exchanges losing prominence and fading away. 

Compliance monitoring at the SME platform seems to be the chief culprit. Being a quasi-regulator, the BSE can’t turn a blind eye to the blatant misuse of the platform. Given that enforcement is pretty lax in India, the market regulator is better off maintaining a high entry barrier for accessing the public market, and leaving the SME space to NBFCs or high net worth investors who understand it better.