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SME IPO Intermediaries

By definition, intermediaries are a set of companies or individuals that play a critical role in the SME IPO process to ensure that the IPO is executed smoothly and in compliance with all regulatory requirements. They are Merchant Banker, RTA (Registrar and Transfer Agent), Stock Exchange, Depository Participant (DP), Underwriters, Legal Counsel.

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IPO intermediaries are the parties (companies or individuals) that assist an issuer in completing an IPO and a successful listing. Intermediaries play an important role by assisting the company at each stage of the IPO process.

Let us discuss these parties in detail.


Securities and Exchange Board of India (SEBI) is the regulatory body for Indian securities. SEBI is a government organization that sets the framework of rules for the capital market. All other intermediaries follow the rules set by SEBI while helping the issuing company with SME IPO.

Note: Unlike mainboard IPOs, the SME IPO prospectus does not require SEBI approval. Prospectus documents are reviewed and approved by the exchanges at SME IPO.

2. Stock Exchange

The stock exchange in India serves as a platform for trading stocks. There are two government-recognised national stock exchanges in India: the BSE (Bombay Stock Exchange) and the NSE (National Stock Exchange).

Both the BSE and NSE offer their own platform for SME IPO where small and medium enterprises can raise funds and get listed. They are called the BSE SME and NSE Emerge Platforms respectively.

The role of stock exchanges in SME IPOs

  • Review and approval of the application forSME IPO.
  • Review and approval of DRHP document.
  • Facilitation of the IPO bidding and allocation process.
  • Listing the shares of the SME IPO on the stock exchange.

3. Merchant Banker (Lead Manager)

A merchant banker is the first intermediary hired by the issuing company. They orchestrate the entire IPO process. Click on the link to check the list of merchant bankers.

The role of a merchant banker in an SME IPO

A merchant banker's role begins with due diligence for an IPO. It is not completed until after the post-listing process. Merchant Bankers are involved from day one to assist the issuing company at every stage of the IPO. Their role for the SME IPO is as follows:

1. Provide information to the issuing company

The merchant banker introduces the issuer to all the details of the IPO process. They provide issuers with information and instructions regarding:

  • The issuer's eligibility for listing,
  • Capital requirements,
  • Market rules and regulations,
  • the IPO process, and
  • Pre- and post-listing needs.

2. Due Diligence

Due diligence involves gathering, organizing, and reviewing the documentation for an IPO. This phase includes the following:

  • Gathering organizational data.
  • Gathering licensing and tax data.
  • Compiling audited reports.
  • Compiling board and employee information.
  • Financial information. This includes liabilities and assets.
  • Market growth information.
  • Status of company assets (movable and immovable assets).

The merchant banker assesses whether or not the company is eligible for an IPO. This is done based on the criteria set by all authorities. These include:

  • Minimum tangible assets of the issuer (should be Rs 1.5 crore), positive operating profit, net worth and financial track record of at least 3 years.
  • Paid-up capital after the issue (not more than Rs 25 crores).
  • The Merchant Banker must also review and prepare documents such as material contracts and government approvals.
  • Details of promoters / management / shareholders and their names.

Thereafter, the Merchant Banker shall determine the optimal issue structure and prepare the prospectus.

3. Planning the IPO structure

The issuer and the merchant banker jointly plan the structure of the SME IPO. Then they plan the offering. This includes the following information:

  • The type of securities applied for listing.
  • The number of securities.
  • Fully paid-up / partly paid-up shares.
  • Par value.
  • Lot size.
  • Minimum order quantity.
  • Price determination.
  • Proportion of anchor investors, proportion of retail investors, proportion of qualified institutional buyers, proportion of non-institutional investors.
  • Booking period.
  • Percentage of employee reservation, employee discount, market maker share, etc.

4. Appointment of intermediaries

SME IPOs require multiple intermediaries such as a registrar, law firm, banker, compliance officer, etc. These intermediaries must be registered with and approved by SEBI.

5. Drafting of contracts

In this phase, Merchant Bankers draft key agreements, documents and resolutions required for a SME IPO process. These documents include, but are not limited to:

  • Tripartite Agreement with NSDL, CDSL and Registrar to Issue;
  • Underwriting Agreement;
  • Market Making Agreement;
  • Agreement with Bankers to Issue;
  • Agreement with Registrar to Issue;
  • Board/Shareholder Resolutions;
  • Certificates, declarations of representation, etc.;
  • Draft public notices, announcements, etc.;
  • Forms/applications to be filed with the Exchange, RoC and other regulatory agencies.

6. Drafting of the Prospectus

The Lead Manager shall draft the IPO offering document (draft red herring prospectus or DRHP). The prospectus contains all information necessary to enable investors to make a decision. This includes information about the offering, industry overview, financial statements, IPO timeline, and more.

While it is recommended to read the full prospectus. Investors who are short on time need to review the following information in the prospectus:

  • Company liabilities, including legal challenges.
  • Risks (industry, market and company specific).
  • Offering structure and terms.
  • Contact details in case of complaints.

7. Submission of DRHP to Stock Exchange/SEBI/RoC

The lead manager files the DRHP with the stock exchange, SEBI and the RoC. In case of an SMEIPO, the stock exchange reviews and processes the documents.

  • The Exchange grants the "In-Principle" approval on the recommendation of the Committee. This is done on the condition that all requirements are met by the issuing company.
  • The RoC issues its approval.

8. Underwriting

An underwriter undertakes the risk of buying the shares in the event of under subscription. For example, if an SME IPO is subscribed up to 65%, the underwriter must subscribe to the remaining 35% of the IPO shares offered.

By law, all SME IPOs must be 100% underwritten. Merchant bankers must underwrite at least 15% of the shares of a SME IPO. The remaining 85% is arranged through a third-party fund manager. The issuing companies pay an underwriting fee (generally in the form of a discount on the share price) to the underwriters.

9. IPO roadshow and publicity

Prior to this stage, the filing of the application and the preparation of the prospectus are completed.

The merchant banker is now responsible for publicizing and advertising the IPO. This will familiarize investors with the IPO. The Merchant Banker organizes the SME IPO roadshow.

An SME IPO Roadshow is a marketing event. During this event, the Merchant Banker organizes group or individual meetings with investors. The company and the Merchant Banker together make presentations to institutional investors, mutual funds, pension funds, hedge funds and others. During these meetings, the Company and the Merchant Bankers pitch presentations explaining the Company's model, financials, legal disclosures, growth prospects, and details of the offering.

10. Listing and post-issuance formalities

The listing process is completed when:

  • The documents have been approved by SEBI and the stock exchanges.
  • The shares are listed on the stock exchange under the launch of SME IPO.

After preparing the listing formalities, the merchant bank's role continues. It is also responsible for post-listing documentation, compliance and other formalities.

4. Chartered Accountant (CA)

CA assists SMEs with due diligence for regulatory compliance, RoC compliance, certification of restated financial statements, audit of financial statements, and more.

The role of Chartered Accountant in the IPO of SMEs

  • Financial due diligence.
  • Business forecasting and valuation.
  • Reviewing 3 years of restated financial information.
  • Certification of financial information (income statement, cash flow statement, or balance sheet)
  • Statement of Tax Benefit.
  • Certificate on Object of the issue.
  • Compliance with disclosure requirements.

The Merchant Bankers' role is to oversee this processand the CA is responsible for theexecution.

5. Company Secretary (CS)

The company secretary of the issuer advises the company on corporate restructurings.

Role of the Company Secretary in SME IPOs

The Company Secretary must make recommendations on:

  • Corporate and capital structuring.
  • Details of group companies.
  • Litigation and material developments.
  • Compliance with LODR and corporate governance.
  • Compliance with listing agreement.
  • Brokerage and securities audit.

6. Registrar

Registrars and Transfer Agents (RTAs) are independent financial institutions registered with SEBI and the stock exchanges. Registrars maintain records of issuance and ownership of company shares.

Role of the registrar in SME IPOs

The registrar is responsible for the following in the pre-IPO and post-IPO process:

Note: 'Designated Intermediaries' means the syndicate, sub-syndicates/agents, SCSBs, registered brokers, brokers, omnibus depository participants and RTAs authorized to receive application forms from applicants.

  1. Work with custodians (CDSL, NSDL) on behalf of the Company to obtain the ISIN number and enter into the tripartite agreements to be entered into with the custodians.
  2. Assist the Company in dematerializing the shares held by the existing shareholders.
  3. Review the sections on the issuance procedure in the prospectus.
  4. Assist the company with the design and printing of the IPO application forms.
  5. Collection of IPO application forms from banks and other designated intermediaries.
  6. Collecting IPO application data from stock exchanges.
  7. Aggregate the data, i.e., the total number of bids/shares uploaded and the total number of amounts blocked.
  8. Retrieve PAN, DP ID and client ID details of valid beneficiary accounts from custodians.
  9. Reconciliation of bids received from designated intermediaries and exchanges and notification to needful authorities in case of discrepancies.
  10. Creation of a physical book for the bids received from the anchor investor and delivery to the company and the LM.
  11. During the issue period, collect the bid files from the exchanges/ LM of ASBA forms worth up to Rs. 2,00,000 on a daily basis and reconcile the DP ID, the clients ID and PAN with the depository database and provide a file to the SCSBs for blocking the funds on a daily basis.
  12. Transmit the final bid file received from the exchanges, which includes application form numbers and bid amount, to all escrow banks and the SCSBs forvalidation/reconciliation.
  13. Reconciliation of the compiled data received from the Exchanges and all SCSBs with the custodians' database to verify the accuracy of DP ID, client ID and PAN.
  14. Notify designated intermediaries of any errors in the bid data with a request to submit the corrected data within a specified time period.
  15. Obtain PAN and MICR codes associated with the demat account from custodians. Verify this data with the bid file.
  16. Reject bids if the DP ID, ID and PAN indicated in the application form and entered by the designated intermediaries in the electronic bidding system of the exchanges do not match the DP ID, ID and PAN available in the database of the depositories.
  17. Reconciliation of electronic data collected by the exchanges and designated intermediaries with the information on blocked amounts received from the SCSB.
  18. Preparation of a complete list of valid bids (after all rejections, including rejections for technical reasons) and presentation of this list by category.
  19. Finalize the allocation basis and have it approved by the Exchange.
  20. Finalize the list of persons entitled to the allotment of shares.
  21. Prepare the transfer plan for the banks.
  22. Instruct the banks to release the funds blocked for the bids.
  23. Arrange for the shares to be credited to the allottees.
  24. Transfer the funds from the escrow accounts to the public issue account to eventually credit the company.
  25. Provide all relevant statements/reports for the completion of the basis of allotment, listing and trading, post-issue monitoring reports, etc.
  26. Provide data enabling the Company to publish the allotment notice within the prescribed time.
  27. Settlement of investors' complaints and grievances.
  28. In case of failure of the issue: issuing appropriate instructions to the SCSBs to release the relevant ASBA accounts and to the trust banks to refund the anchor investors.

Click on IPO Registrar to check the list of registered registrars in India.

A legal advisor's job is to gather and review information to determine whether or not the issuer is legally eligible for an IPO. They perform legal due diligence to ensure that the company and its directors and promoters are eligible for an IPO.

Role of the legal advisor in the IPO:

  • Provide legal advice on legal matters.
  • Draft legal documents, memoranda and related documents.
  • Review of legal materials.
  • Preparation of dispute resolution procedures.
  • Monitoring the implementation of legal clauses.

8. Banker

The bankers have to be instructed to coordinate the deposit of subscription monies from investors. The banker sends payment instructions and/or mandate collection requests to the UPI.

A company may designate one or more banks to assist in handling all banking-related tasks associated with the offering.

The banker clarifies the status of the funds so that the Registrar can finalize the basis of allotment.

9. Market Maker

Market makers facilitate the liquidity of SME stocks via their 2-way quotes. This contributes to better price discovery. They regularly buy and sell shares on the stock market at predetermined prices.

Market makers are registered members of the exchanges' SME platform. In most cases, the lead manager with a stockbroker license also works as a market maker.

Market making is mandatory for SME IPOs for 3 yearsfrom the date of listing. This is referred to as the "mandatory market making period". If the SME company moves to the main board after 2 years, the period for mandatory market making is reduced accordingly.

For SME IPOs, the issuing company must issue 5% of the issue volume to the market maker. Furthermore, the company must pay an additional fee for market making services, which is calculated for three years in advance.

Market makers are also allowed to place 2-way orders (buy and sell)simultaneously. For example, they can place an order in the range of Rs. 98 - 100. They buy shares at 98 and sell them at 100.

The role of the market maker in SME IPOs

As per the stock exchange guidelines, a market maker is responsible for SME IPO and:

  • Should provide a 2-way quote for 75% of the time in a day.
  • Should guarantee the execution of the order at the specified price and quantity for the quotes provided by him.
  • Shall provide quotes from the date of listing of the relevant security and shall be subject to the market making guidelines set by the Exchange.
  • Market Makers are not responsible for maintaining the price of the shares.


  • A Market Maker should have sufficient inventory on the day of allocation.
  • A market maker should not buy shares from promoters during the market making period.
  • An issue cannot have more than five market makers.
  • A market maker must serve in this capacity for three years.

10. Underwriter

The underwriter to the issue reduces the risk for the SMEs. This is because when the IPO is underwritten, any unsold shares are purchased by the underwriter.

Each SME IPO must be 100% underwritten. The underwriter must cover at least 15% of the shares. The issuer can underwrite the remaining shares.

The underwriter is responsible for purchasing the shares that have not been sold to public investors through SME IPO. If there is an under-subscription or not all IPO shares have been sold, the underwriter will purchase the remaining shares in accordance with the underwriting agreement.

Underwriter roles and responsibilities in an IPO

  • Compliance with the contract clauses of the Underwriting Agreement.
  • Responsible for selling the predetermined number of shares.
  • Responsible for the purchase of the remaining or unsold shares.
  • Co-organising the IPO roadshow, advertising and marketing. Ensuring the success of the roadshow.
  • Assist issuer in determining share valuation, whether shares are overvalued or undervalued.
  • Advising and supporting the issuer in the IPO process.

11. Other Intermediaries

Grading Agency

The grade given to the initial public offering (IPO) of shares by a credit rating agency (CRA) registered with SEBI is referred to as IPO classification. Companies that comply with Chapter IX of SEBI (ICDR) Regulations are not required to engage an IPO rating agency. For SMEs, engagement of a grading agency is not mandatory.

Advertising/ PR Agencies

Duties and responsibilities of advertising agencies in an IPO:

  • Advertising the IPO and increasing visibility.
  • Road shows and promotional activities.
  • Dissemination of IPO documents in newspapers.

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Key Takeaways

  • SMEs can list on either NSE Emerge or BSE SME exchanges.
  • Key intermediaries in an IPO are lead manager, registrar, underwriter, legal advisor, CA, CS, compliance officer, market maker, auditor, and banker.
  • The merchant banker (or lead manager) plays the most important role in listing an IPO.
  • Market making is mandatory for SME IPOs and voluntary for Main Board IPOs.
  • SME IPOs must be 100% underwritten by the merchant banker of the IPO.

Frequently Asked Questions

  1. Merchant bankers for an IPO are organizations involved in the management of public issues. They engage in the early stages, i.e., due diligence, and work through to the management of post-issuance activities.



  2. Merchant bankers assist the issuer throughout the IPO process in preparing for listing. The role of the merchant banker in an SME IPO is essentially as follows:

    1. Pre-IPO preparatory support - capital restructuring, appointment of market intermediaries.
    2. Due diligence - gathering preliminary data of the company.
    3. Valuation/issue pricing.
    4. Prospectus and other documents.
    5. Issue management - obtaining approvals, opening and closing of the IPO.
    6. Post IPO closing support - allotment, listing, etc.
    7. Post-IPO market making - market making, etc.



  3. Merchant Bankers are companies registered with SEBI. Here are a few basic guidelines for appointing a Merchant Banker for your IPO:



  4. The most important tasks of the registrar in the pre-IPO and post-IPO process are described below:

    • Processing the IPO application data received from the Exchange's IPO bidding platform and syndicatebanks.
    • Maintaining a record of funds received from investors.
    • Finalization of the basis of allotment.
    • Finalization of share allotment.
    • Transfer of allotted shares to the applicant's demat account.
    • Processing of refunds or release of funds.
    • Resolvinginvestor complaints related to the allotment.



  5. Market makers help publicly traded companies in improving liquidity and enhancing their stock price. Market makers buy shares from the company and sell them to investors at different prices to maintain liquidity. They also place 2-way orders, which are buy and sell orders at the same time, to make shares available to buyers or accept sales from investors who want to exit.

    Merchant bankers, who also have brokerage licenses, play the role of market making. They charge a monthly fee from the issuing company for this activity.

    In an SME IPO, the issuing company must give 5% of the issue volume to the market maker.

    Market makers sign an agreement with the issuing company specifying their duties and responsibilities in an IPO.



  6. Market makers make their money in different ways:

    • The market maker charges a fixed fee (e.g., Rs 25000 per month) for one year to three years.
    • The company has to issue 5% of the issue volume to the market maker through SME IPO. The profit earned on these shares remains with the market maker.
    • They are also allowed to place 2-way orders (buy and sell) simultaneously. For example, they can place orders in the range of Rs 100 - 102. They buy shares at Rs. 100 and sell them at Rs. 102. They keep the profits made.




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