GEM board to replace defunct SME board as SECP formulates new regulations for SMEs

  • New regulations to allow growing and expanding companies to raise capital
  • Any company with post issue paid up capital of Rs25m is eligible for listing by paying fee of Rs50,000

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has approved the Growth Enterprise Market (GEM) Listing Regulations to enable Small and Medium Enterprises (SMEs), green field projects, and Not for Profit companies to raise capital through the Pakistan Stock Exchange (PSX).

SECP has advised the PSX to arrange publication of new regulations in the official Gazette of Pakistan to replace the existing regulations governing listing and trading of equity securities of small and medium enterprises.

The GEM regulations are designed primarily to facilitate small businesses, startups and green field companies that are aspiring to raise funds through capital markets but cannot fulfill the stringent conditions as per the previous listings on the main board of PSX. 

Therefore, in addition to the main board of PSX, there will be a second board at PSX of the GEM for listing and trading of equity securities. The trading screen for both boards is to remain the same.

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The new board provides a more suitable regulatory environment as compared to the main board. Any public limited company having audited accounts for the last two financial years and post issue paid up capital of at least Rs25 million is eligible for listing on GEM board. The minimum fee for listing on GEM board is Rs50,000, that is only one-fourth of the listing requirement on PSX main board of Rs200,000.

This new GME board will replace the SME board that have been in place since last two years but have not attracted any listing due to stricter conditions. The new regulations are focused on facilitating startups and businesses that may be more growth oriented than profit making. The conditions required for businesses to gain listing on this board are considerably more relaxed than the main board for 100 index and 30 index and unlike these indices have no requirement on profitability grounds.

It mainly requires the audited reports of past two years. SECP’s official statement to Profit explains that these audited statements will help the commission in evaluating the state of the applicants. “We here also learn from the laws and the responses of the business community, and therefore we have changed these rules to become much less stringent for small and medium enterprises and growth oriented companies.”

This means that businesses and startups, such as tech companies, that need to invest a lot of money to gain grounds and expand before they can turn into profit making entities will also be able to get a listing on the stock exchange now and gain investment from the capital markets.

As per further details published by Business Recorder, to facilitate the issuers, any person licensed with the SECP as a securities broker or consultant to the issue can act as Advisor. The issuer may offer, by way of information memorandum, only 10% of the post issue paid up capital to the eligible investors. The said board also allows green field project and non-profitable companies to raise funds. Moreover, the companies listed on GEM board may graduate to the main board subject to the fulfillment of prescribed criteria. However, reverse migration is not allowed.

In order to create liquidity on the GEM board, the concept of eligible investor has been introduced and minimum lot size has been linked with the main board of the PSX, which is currently 500 shares. Eligible investor includes all institutional investors and eligible individual investors registered with National Clearing Company of Pakistan Ltd that have financial strength or expertise.

The post listing requirements of GEM board are also relaxed as compared to the main board such as non-applicability of code of corporate governance, submission of half yearly progress report as compared to quarterly progress report.

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