Stock market regulator Securities and Exchange Board of India (SEBI) has released framework regulations for setting up a dedicated stock exchange for the small and medium enterprise (SME) sector.

The SME exchange would be set up using existing stock exchange platforms or as new stock exchange after obtaining due recognition under the Securities Contracts (Regulation) Act – 1956 (SCRA), the regulator said in a release.

The proposed SME stock exchange would be set up as a corporatised entity. It will be a demutualised entity and will comply with the Securities Contracts (Regulation) (Manner of Increasing and Maintaining Public Shareholding in Recognised Stock Exchanges) Regulations, 2006 within a specified period (1-2 years) from the date of commencement of trading, the SEBI release said.

For recognition by the Sebi, the exchange should have a balance sheet networth of at least Rs100 crore. All trading members of the SME exchange shall register themselves with the exchange and SEBI.

The exchange will have nationwide trading terminals and an online screen-based trading system, which also has a suitable `Business Continuity Plan', including a disaster recovery site.

The exchange will have online surveillance capability to monitor positions, prices and volumes in real time so as to check market manipulation and will have adequate inspection capability.

It will also have adequate arbitration and investor grievances redressal mechanism operative from all the four regions of the country.

The risk management system and surveillance system will be the same as that of the cash market.

Information about trades, quantities, and quotes shall be disseminated by the exchange in real time to at least two information vending networks which are accessible to investors in the country.

The above eligibility criteria shall also be applicable to existing exchanges desirous of setting up a platform for the SME sector.

The minimum trading lot will be Rs1 lakh. Trading system may either be order driven or quote driven. The settlement may either be on rolling, trade for trade or call auction basis.

The clearing function of the exchange may be performed by a clearing corporation/ clearing house.

Parties interested in setting up a dedicated stock exchange for the SME sector may apply to Market Regulation Department, SEBI, in the manner prescribed under the Securities Contracts (Regulation) Rules, 1957. Existing exchanges desirous of setting up a platform for the SME sector may submit a detailed application demonstrating their compliance with the eligibility criteria mentioned under (I) above along with the proposed rules, regulations and byelaws for the SME platform, the SEBI release added.