SEBI Probes SME Market Manipulation and Revamps Settlement Rules

The Securities and Exchange Board of India has intensified its oversight of the Small and Medium Enterprise segment following evidence of blatant market manipulation. Investigators uncovered a sophisticated fund rotation scheme where a company's market capitalization was artificially inflated from Rs 3 crore to Rs 4925 crore. This practice involved routing capital through multiple entities to manipulate share prices, prompting the regulator to scrutinize current market mechanisms more closely.

The regulator's focus on SME market integrity follows widespread concerns regarding high operational costs and thin liquidity in these segments. Turbulence in the BSE closing auction session has further complicated the growth outlook for the exchange, highlighting vulnerabilities in existing trading systems. Regulators are now evaluating a new Scrutiny+Settlement approach to address these violations with greater speed and efficiency, which could potentially offer relief for minor non-compliance cases.

Moving forward, the market regulator is considering easing specific trading and market-making rules for SMEs to alleviate liquidity constraints. These reforms aim to restore investor confidence and create a more transparent trading environment for smaller firms. Analysts suggest that streamlining these settlement procedures will be critical in curbing fraudulent practices like circular trading while maintaining market efficiency for retail participants involved in smaller equity listings.