By definition, intermediaries are a group of companies or individuals that play a crucial role in the SME IPO process. They ensure the IPO is carried out smoothly and adheres to all regulatory guidelines. These intermediaries include the Merchant Banker, RTA (Registrar and Transfer Agent), Stock Exchange, Depository Participant (DP), Underwriters, and Legal Counsel.
SME IPO intermediaries are specialized professionals or organizations authorized to assist businesses in launching their public offering. They play a pivotal role in regulatory filings, legal due diligence, financial advisory, issue management, and post-issue support.
A successful SME IPO (Initial Public Offering) involves the coordination of several key intermediaries who help guide a company through the regulatory, financial, and operational aspects of getting listed on platforms like NSE EMERGE or BSE SME. These intermediaries ensure compliance with SEBI regulations, prepare documentation, market the issue to investors, and manage the IPO process from start to finish. Here's a detailed look at each intermediary and their contributions:
SEBI – The Regulatory Backbone
The Securities and Exchange Board of India (SEBI) is the primary authority overseeing all IPO-related activities in India. SEBI issues guidelines under the ICDR (Issue of Capital and Disclosure Requirements) Regulations, which govern eligibility, disclosures, pricing, investor protection, and listing norms.
Every SME IPO must adhere to SEBI’s rules, and offer documents must be submitted to SEBI for review and approval before the public issue can be launched.
Stock Exchange – NSE EMERGE / BSE SME
An IPO is listed on a recognized stock exchange, either NSE EMERGE or BSE SME. The exchange reviews the Draft Red Herring Prospectus (DRHP), grants in-principal approval, and facilitates post-listing compliance and trading.
The SME platform offers relaxed regulatory norms while ensuring transparency and governance.
Merchant Banker (Lead Manager)
The Merchant Banker, also known as the Lead Manager, is the central coordinator of the IPO process. They are SEBI-registered entities responsible for preparing the offer document (DRHP), conducting due diligence, handling IPO pricing, liaising with SEBI and the stock exchange, and managing the entire issue from start to finish. Their reputation and experience significantly impact the success of the IPO.
Chartered Accountant (CA)
A Chartered Accountant plays a key role in verifying and certifying the financial statements, profitability, and net worth of the company.
The CA prepares restated financials as per SEBI norms, conducts ratio analysis, and often assists in valuation reports. Without their sign-off, financial documents cannot be submitted as part of the IPO process.
Company Secretary (CS)
The Company Secretary (CS) ensures the company’s compliance with all legal and procedural requirements under the Companies Act.
They are responsible for drafting, passing, and filing board and shareholder resolutions (e.g., via Form MGT-14), making structural changes (using Form INC-27), and maintaining statutory records.
The CS plays a vital role in internal corporate governance and ensuring timely compliance with the Registrar of Companies (RoC) requirements.
Registrar to the Issue
The Registrar plays a key role in both pre-IPO and post-IPO processes. They manage investor-facing tasks such as processing IPO applications, finalizing allotment, initiating refunds (if any), and preparing the final list of shareholders.
They coordinate with depositories (CDSL/NSDL) to obtain the ISIN, assist in dematerializing shares, reconcile bid data with depositories and intermediaries, validate PAN/DP/client IDs, and finalize the list of valid bids.
Post-issue, they support compliance through reports and ensure smooth coordination with exchanges, banks, and custodians throughout the IPO lifecycle.
Legal Advisor
The Legal Advisor conducts in-depth legal due diligence on the company’s past and present affairs, including litigations, contracts, and regulatory history.
They draft legal sections of the offer document, ensure compliance with the Companies Act and SEBI rules, and advise on disclosures and risk factors that must be communicated to investors.
Banker to the Issue
The Banker to the Issue is responsible for managing the financial flow of IPO funds. The banker plays a vital trust role between the issuer and the investing public.
They set up escrow accounts to collect application money from investors, coordinate fund settlement, and ensure timely refunds or transfers post-allotment.
Market Maker
A Market Maker ensures there is always a buyer and seller for the company's shares post-listing by continuously providing two-way quotes. This helps maintain liquidity and price stability.
For SME listings on platforms like NSE EMERGE, appointing a SEBI-registered Market Maker for a minimum of three years is mandatory.
Underwriter
The Underwriter guarantees that the IPO will be fully subscribed, either by public investors or by purchasing any unsubscribed portion themselves.
Lead Managers (Merchant Bankers) generally underwrite the issue partially or fully, providing a safety net by agreeing to subscribe to unsubscribed shares.
Depository Participant (DP)
Depository Participants help investors and companies open demat accounts and convert physical shares into electronic form.
Before an IPO, the company must ensure its shares are dematerialized, and investors can only receive shares in demat form. DPs work with NSDL or CDSL to make this possible.
Other Intermediaries
Additional support professionals like public relations firms, investor relations advisors, valuation consultants, and compliance experts help promote the IPO, manage investor communication, and ensure smooth execution of IPO milestones.
Advertising & PR Agency
The Advertising and Public Relations (PR) agency helps create visibility for the SME IPO through marketing campaigns, media outreach, and investor communication.
They handle IPO ads, digital promotions, and manage brand perception to attract investor attention, especially important for lesser-known SMEs entering the public market.
Grading Agency
A Grading Agency assesses the fundamentals and risk profile of the SME and its IPO. Although IPO grading is not mandatory, it can add investor confidence. The grading is done by SEBI-registered agencies like CRISIL, CARE, or ICRA, based on financial health, business model, governance, and future outlook.
Importance of Intermediaries in IPO Process
- Ensure strict compliance with SEBI and exchange regulations.
- Manage financial, legal, and procedural complexity.
- Improve credibility and investor confidence.
- Facilitate smooth IPO execution and successful listing.
- Support post-IPO activities like market making and investor services.
Selection of IPO Intermediaries
Choosing the right intermediaries can make or break your SME IPO. Below are some points to be considered while selecting the IPO intermediaries.
- Select intermediaries with a proven track record in SME IPOs.
- Ensure SEBI registration and exchange approval.
- Prefer partners who provide end-to-end IPO support.
- Look for professionals with experience in your industry segment.
Key Takeaways
- Multiple intermediaries collaborate to ensure a smooth, compliant, and transparent SME IPO process.
- SEBI regulates the IPO and sets mandatory guidelines all intermediaries must follow.
- Choosing experienced, SEBI-registered, and exchange-approved intermediaries is key to IPO success.