In short: SEBI’s consultation paper of 14 October 2026 aims to make SME IPOs more proportionate and cheaper for a segment of 1,496 listings. Eligibility would follow market capitalisation, the 100% underwriting rule and compulsory market making would go, and the minimum bid would fall to Rs 1 lakh. Nothing applies before notification; comments are due 4 November 2026.
Key facts
| Authority | Securities and Exchange Board of India (SEBI), the statutory securities market regulator |
|---|---|
| Instrument | Consultation Paper on Recommendations pursuant to Review of provisions of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 related to Initial Public Offer by Small and Medium Enterprises |
| Issue date | 14 October 2026 |
| Effective date | Not applicable yet; the Gazette notification date will be fixed in the final text |
| Applies to | SME issuers, lead managers, underwriters, market makers, SME exchanges and investors |
| Status | Consultation. Comments until 4 November 2026 |
| Official source | https://www.sebi.gov.in/reports-and-statistics/reports/oct-2026/consultation-paper-on-recommendations-pursuant-to-review-of-provisions-of-sebi-issue-of-capital-and-disclosure-requirements-regulations-2018-related-to-initial-public-offer-by-small-and-medium-ente-_105252.html |
| Last verified | 15 October 2026, against SEBI’s page, the paper and the consolidated ICDR Regulations |
Why is SEBI reviewing SME IPOs?
The SME platforms have grown quickly. As at 31 July 2026, 1,496 entities had listed on them since inception, SME IPOs had raised Rs 40,222 crore, and the listed entities carried a market capitalisation of Rs 4,70,984 crore (section 3). The paper asks whether the framework remains “proportionate and fit for purpose”, looking at ease of compliance, cost of fund raising, investor participation and consistency with the Main Board while keeping the safeguards investors need (sections 3 and 4).
NSE SME IPOs paid underwriting fees averaging about 38.41% of total issue expenses in FY 2025-26 (section 5.6.1.2). A SEBI Working Group reviewed the framework and the Primary Market Advisory Committee considered its report (section 2).
How does the SME framework work today?
Chapter IX of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, made under section 30 of the SEBI Act, 1992, governs SME IPOs, which list on an “SME exchange” defined to exclude the Main Board (Regulation 2(1)(ddd)). Eligibility turns on post-issue paid-up capital (Regulation 229), the exchange’s track record conditions and a minimum operating profit. Regulations 253 to 268 cover distribution, Regulations 238 and 239 the lock-ins, and Regulations 276, 277 and 280(2) migration. The Main Board asks for more: Regulation 6(1) requires average operating profit of Rs 15 crore.
The 2025 amendments (effective 8 March 2025) set the minimum application above Rs 2 lakh, aiming at “limiting participation by smaller retail investors” (section 5.5.1.6.1).
What would change, and for whom?
Seven proposals matter most:
| Area | Today | Would become |
|---|---|---|
| EligibilityRegs 229(1), (2) | Post-issue paid-up capital up to Rs 10 crore; up to Rs 25 crore “may also issue”. | Value at offer price up to Rs 1,000 crore must list on SME; up to Rs 4,000 crore optional, with three years of Ind AS statements. Re-filing at RHP stage if a Main Board draft is at or below Rs 1,000 crore or an SME draft above Rs 4,000 crore. |
| Profit testReg 229(6) | Rs 1 crore operating profit in two of three years. | Average of Rs 3 crore a year over three years. |
| Profit-test fallbackNew Reg 229(7) | Not in Chapter IX. | Book-built, 75% of net offer to QIBs, else full refund. |
| UnderwritingRegs 260, 264(5) | 100% underwritten; lead managers underwrite 15% themselves; registrar confirms 90% subscription. | Main Board model; new Reg 265A minimum subscription of 90% (other than an offer for sale); Reg 264(5) omitted. |
| Market making and lotReg 261; 2012 circular | Three years of market making, 5% inventory; lot 10,000 shares down to 100. | Reg 261 omitted; one-share lot; circular rescinded. |
| Application and allotmentRegs 253, 267, 268 | Two lots, above Rs 2 lakh; 200 allottees. | Four lots of Rs 25,000 (Rs 1 lakh); anchors up to 60% of QIB portion; 500 allottees. |
| Lock-in and OFSRegs 238, 239, 230(1)(f), (g) | Promoters three years from the later of allotment or commercial production, excess half two years and half one; others one year; OFS 20% of issue, 50% of holding. | Promoters three years from allotment, excess and promoter group one year; others six months; new Reg 230A one-year OFS holding, caps not binding QIB sellers, except in Reg 229(7) issues (5.3.6). |
Issuers would see the biggest shift in eligibility: the platform would follow value at the offer price, tested again at RHP or prospectus stage (section 5.1.1.3.3), because paid-up capital “may not adequately reflect the economic size, scale, valuation or growth potential of an enterprise”. Lead managers would lose the 100% and 15% underwriting obligations and the market-making mandate, while book-built issues stay underwritten (draft Regulation 260(3)(a)). Our reading: fee and risk models built on today’s rules would need revisiting. SME exchanges would run a one-share lot, and investors would face a lower minimum application, and each issue would need 500 allottees.
From when, and what comes next?
Nothing changes until SEBI notifies final amendment regulations in the Official Gazette, and that date has not yet been announced. Comments are due by 4 November 2026 (section 7.1).
For pipeline issues, the paper proposes a three-month window (section 5.9). Drafts filed three months or more after notification would follow the revised framework; in the first three months the issuer may choose. An RHP or prospectus filed by the notification date stays on the existing rules. Market making and lot size would change only when SEBI issues a circular rescinding the 2012 lot-size circular, and listed issuers keep their lock-ins. The paper’s 31 December 2026 date is an illustration.
What might lead managers and issuers do?
These are our suggestions, not requirements of the paper:
- Test valuation across the price band against the Rs 1,000 crore and Rs 4,000 crore lines, since a crossing at RHP stage could force a re-filing, and check that three years of Ind AS statements exist for the optional band.
What should readers watch for?
The final text will settle two wordings, which respondents may wish to raise. Draft Regulations 229(1) and (2) read “post-issue capital calculated at the offer price”, while the discussion refers to market capitalisation. Draft Regulation 277 reads “₹4,000 crore or more” for mandatory migration, while sections 5.7.3.5 and 5.7.6.1.1 say market capitalisation that “exceeds” it.
Frequently asked questions
How do I send comments, and by when?
Through SEBI's online public comments form by 4 November 2026 (section 7.1). If the form has a technical problem, email consultationcfd@sebi.gov.in with the paper's title as the subject (section 8).
My SME draft offer document is already filed. Which rules would apply?
If the RHP or prospectus is filed by the notification date, the existing framework continues; an earlier SME draft with approval or the RHP pending could switch by addendum (section 5.9.2.5).
Would an SME IPO still be underwritten?
Book-built issues would be, on the Main Board model (draft Regulation 260(3)(a)), except the QIB portion under Regulation 229(7). The 100% rule and the 15% own-account obligation would go, and new Regulation 265A would require minimum subscription of 90%, other than for an offer for sale.
Our company has not met the profit test. Could we still list on SME?
Possibly, under proposed Regulation 229(7): a book-built issue with at least 75% of the net offer to QIBs, with Regulations 229(3) to (5) still applying.
Sources (official, verified 15 October 2026)
- SEBI, consultation paper page https://www.sebi.gov.in/reports-and-statistics/reports/oct-2026/consultation-paper-on-recommendations-pursuant-to-review-of-provisions-of-sebi-issue-of-capital-and-disclosure-requirements-regulations-2018-related-to-initial-public-offer-by-small-and-medium-ente-_105252.html
- SEBI, the consultation paper (PDF) https://www.sebi.gov.in/sebi_data/attachdocs/oct-2026/1791972839578.pdf
- SEBI, ICDR Regulations, 2018, last amended March 21, 2026 https://www.sebi.gov.in/legal/regulations/mar-2026/securities-and-exchange-board-of-india-issue-of-capital-and-disclosure-requirements-regulations-2018-last-amended-on-march-21-2026-_100581.html
- SEBI, consolidated ICDR Regulations (PDF) https://www.sebi.gov.in/sebi_data/attachdocs/mar-2026/1774592300989.pdf
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- SEBI
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