Applies now: Vedant Poly Fabs, allotment out · lists 9 Nov. See 3 more
The short answer
An SME IPO lists on a small company platform, BSE SME or NSE Emerge. Trading in these shares can be thin, with few buyers and sellers on most days.
To make sure there is always someone to trade with, SEBI requires every SME IPO to appoint a market maker. This is a stock broker registered with the SME exchange. For at least three years after listing, it must keep offering to buy and to sell the company’s shares.
The rule is in Regulation 261 of SEBI’s ICDR Regulations. Mainboard IPOs have no such requirement, because their shares usually trade freely.
What the market maker must do
The obligations come from SEBI and the exchange, and every SME RHP lists them. The main ones:
| Obligation | What it means |
|---|---|
| Quote both ways | Show a buy price and a sell price for at least 75% of the trading day |
| Minimum quote size | Each quote must be for at least ₹1,00,000 of shares |
| Honour its quotes | Trades at its quoted price and quantity must go through |
| Stay three years | The arrangement runs for at least three years from listing |
| Keep spreads tight | The gap between its buy and sell price must stay within the exchange’s limit |
The exchange watches these in real time. It can fine or suspend a market maker that is absent for more than a quarter of the day.
The 5% it takes in the IPO
Before the issue is split among investors, at least 5% is set aside for the market maker. The RHP calls this the market maker reservation portion.
These shares become its starting stock. With them, it can sell to buyers from the first day of trading. What is left after this portion is the net issue, which is split among QIBs, non-institutional investors and individual investors.
When you read an SME IPO’s size, check which figure is used. Subscription figures are worked out on the net issue, not the full issue.
How the spread works
The spread is the gap between the market maker’s sell price and its buy price. A narrow spread costs you less when you buy and sell. The RHPs for both BSE SME and NSE Emerge quote the same table, as a percentage of the sell price:
| Share price | Maximum spread |
|---|---|
| Up to ₹50 | 9% |
| ₹50 to ₹75 | 8% |
| ₹75 to ₹100 | 6% |
| Above ₹100 | 5% |
So for a share around ₹90, if the market maker offers to sell at ₹95, its buy price must be at least about ₹89.30. That is 6% below ₹95, our calculation.
A 5% to 9% spread is wide compared with most mainboard shares. It is the cost of having a guaranteed counterparty in a thin market.
When the market maker can stop buying
The market maker cannot keep buying without limit. After the first three months, it may stop showing a buy price once its holding reaches a threshold. It must start buying again when its holding falls one percentage point below that level.
The threshold depends on the issue size, under SEBI’s circular of 27 November 2012:
| Issue size | Stops buying at | Starts again at |
|---|---|---|
| Up to ₹20 crore | 25% of the issue | 24% |
| ₹20 crore to ₹50 crore | 20% | 19% |
| ₹50 crore to ₹80 crore | 15% | 14% |
| Above ₹80 crore | 12% | 11% |
These limits include the 5% it was allotted in the IPO. There is no limit on the selling side. If it runs out of shares to sell, the exchange reports this to SEBI.
A worked example
Carver Roboweld listed on BSE SME on 4 November 2026. Its RHP gives the market making terms.
- Size of the issue. 35,36,000 shares at ₹80, about ₹28.29 crore.
- Market maker portion. 1,77,600 shares, or 5.02% of the issue. At ₹80 that is about ₹1.42 crore of stock.
- Quote size. Each quote must be at least ₹1,00,000. One lot is 1,600 shares, worth ₹1,51,200 at its first-day close of ₹94.50, so one lot already meets it.
- Buying limit. The issue is in the ₹20 crore to ₹50 crore band, so the limit is 20%. After three months, the market maker may stop buying once it holds 7,07,200 shares, and must restart at 6,71,840 shares.
The share counts in steps 2 and 4 are our calculation from the RHP figures. They show that a market maker absorbs selling only up to a point. If many holders sell at once, it can step back from buying.
How it helps you, and where it stops
The market maker makes it more likely that you can sell an SME holding on an ordinary day. It also allows small holdings to leave the market cleanly.
If your holding is worth less than ₹1,00,000, the RHP lets you sell your entire holding to the market maker in one go. You give your broker a declaration that you are selling everything. This matters because SME shares trade only in whole lots.
What it does not do:
- It does not support the price. It quotes prices it chooses, within the spread limit. If sellers outnumber buyers, its prices fall with the market.
- It does not buy without limit. After three months, it can stop buying at the thresholds above.
- It does not last forever. The duty runs for three years. After that, trading depends on other investors.
How to find the market maker in an RHP
Open the SME IPO’s RHP and look for these sections:
- “General Information”, under “Market making”. It names the market maker, the date of the agreement, the number of reserved shares and the full list of obligations.
- “Issue Structure”. It shows the market maker reservation portion next to the other categories.
- Any notes beside the market maker’s name. RHPs sometimes disclose regulatory action involving the market maker. Carver Roboweld’s RHP, for example, notes an ongoing SEBI investigation concerning its market maker.
Our guide to reading an RHP shows where these sections sit in the document.
Common mistakes to avoid
- Treating the market maker as a buyer of last resort. After three months it can stop buying at the threshold.
- Ignoring the spread. Buying at the sell quote and selling at the buy quote can cost 5% to 9% on the round trip.
- Reading subscription on the full issue. The 5% market maker portion is not part of the net issue that investors bid for.
- Skipping the market maker section. It is short, and it names who will make the market in your shares for three years.
- Assuming all SME IPOs have the same terms. Thresholds depend on issue size, and exchanges can change the rules.
What to do next
Read the risks particular to SME IPOs, including thin trading after listing. Then compare the two platforms in BSE SME vs NSE Emerge, and see how SME IPOs differ from mainboard IPOs. The SME IPOs open now are on our SME IPO list.
Sources: SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, Regulation 261 (market making for SME issues); SEBI circular CIR/MRD/DSA/31/2012, 27 Nov 2012 (upper limits on market maker holdings by issue size); Carver Roboweld RHP, General Information: Market Making (p. 86 to 89), BSE SME, October 2026; Vedant Poly Fabs RHP, Details of Market Making Arrangement (p. 102 to 106), NSE Emerge, October 2026; HGS (India) RHP, Market Making: price band and spreads (p. 73), NSE Emerge, October 2026.
Frequently asked questions
What does a market maker do in an SME IPO?
It is a stock broker that must keep offering to buy and sell the company's shares on the SME platform for at least three years after listing. It quotes both prices for at least 75% of each trading day, so shareholders have someone to trade with.
How much of an SME IPO goes to the market maker?
At least 5% of the issue, under Regulation 261 of SEBI's ICDR Regulations. The RHP shows it as the market maker reservation portion. In Carver Roboweld's IPO it was 1,77,600 of 35,36,000 shares, or 5.02%.
Does the market maker guarantee I can sell my SME shares?
No. It must quote a buy price, but at a price it sets within the spread limit. After the first three months, it can stop buying once its holding reaches a set share of the issue, between 12% and 25% depending on issue size.
Can a market maker buy shares from the promoters?
No. During the three-year market making period, the market maker cannot buy shares from the promoters, the promoter group or anyone who bought shares from them.
Who appoints the market maker?
The company and the lead manager sign an agreement with a broker registered with the SME exchange. If the market maker leaves, the lead manager must find a replacement before the old one is released.
Is the market maker's spread the same on BSE SME and NSE Emerge?
The RHPs for both platforms quote the same spread table, from 9% for shares up to ₹50 to 5% for shares above ₹100. Check the RHP of the IPO you are looking at, because the exchange can change it.