The Securities and Exchange Commission of Pakistan (SECP) has approved regulations for the listing of small and medium enterprises (SMEs) for the Islamabad stock exchange.

The regulations in addition to certain prerequisite conditions provide a set of procedures for issue, listing and trading of shares of SMEs, said a statement issued here on Monday.

Now the SMEs can raise funds from the capital market, through listings, for meeting their financial needs for executing new projects and expansion of their existing businesses, the statement added.

An SME having post-listing paid-up capital of Rs25 million can be listed under these regulations with an initial allocation of at least 25% of the issued capital to the qualified institutional buyers (QIBs).

The regulations require the SMEs to issue shares only to the QIBs through a private placement by circulation of information memorandum either by way of the book-building method or the fixed price method.

The number of initial subscribers must more than 9. The sponsors shall retain their entire shareholding in the SME for at least 12 months from the date of listing or the date of commencement of commercial operation/production whichever is later.

Since shares will not be issued to the general public as such no prospectus is required to be published and therefore the SECP's approval will not be required for listing under these regulations.

However, the business or the project for which the fund is to be raised shall be appraised by a commercial bank, an investment bank or any other institution registered with the SECP as an underwriter.

To ensure liquidity in the share, the SME shall appoint at least one market maker. The shares of SME shall be issued only in an electronic form, therefore, the SMEs shall seek eligibility of their shares through the Central Depository System.

The listing has various benefits for the SMEs, the economy, the shareholders and the capital market.

The SMEs can use capital market as an additional avenue for fund raising through the listing. The listing may create value and liquidity for the shareholders and provide investment opportunities to the investors. The listing of SMEs may act as a nursery for the main boards of the stock exchanges.