A majority of public markets now offer specialized listing platforms for Small and Medium-sized Enterprises (SMEs) to help them access affordable financing, according to research by the World Federation of Exchanges (WFE).
The global industry association for Exchanges and Clearinghouses (CCPs) found that 68 per cent of its member exchanges have implemented dedicated SME platforms or segments, though the success of these initiatives varies depending on the level of regulatory and government support.
The WFE survey, which polled 72 exchanges globally, revealed that SME platforms are designed to ease the path to public listings for smaller businesses.
These platforms feature innovative listing requirements, lower fees, reduced profitability prerequisites, and smaller issuances, helping SMEs overcome the challenges of accessing finance.
The study noted that the Exchanges are responding to both investor demand, by providing greater access to information and opportunities to invest in SMEs, and the financial needs of SMEs, which face significant hurdles in obtaining capital. In some regions, these platforms also address a decline in public listings.
Key benefits offered by SME platforms include exemptions from minimum profitability requirements (57 per cent of exchanges), less frequent reporting schedules (33 per cent), no minimum free-float requirement (30 per cent), and no requirement for historical financial statements (7 per cent).
The survey results indicate significant regional variations in the success of these initiatives. SME markets in advanced economies continue to lead in market capitalization, representing 79 per cent of the global SME public equity market.
However, emerging and developing countries have experienced rapid growth in listings, particularly in the East Asia and Pacific region, which accounts for 49 per cent of global SME listings.
According to the report, from 2012 to 2022, the market capitalization of SMEs in emerging and developing countries increased thirteen-fold, reaching approximately USD 2.13trn by 2022.
The East Asia and Pacific region dominates this segment, contributing 90% of the total SME market capitalization, surpassing USD 2.41trm by the end of 2022.
In contrast, the number of SME listings in North America and Latin America has declined over the same period.
Despite these positive developments, SME markets generally exhibit lower liquidity compared to larger main markets, making it difficult for SMEs to raise capital and attract investors.
Post-pandemic, volatility has increased in SME markets, particularly in regions with a strong retail investor base, where policies such as stimulus packages have amplified market fluctuations.
The report highlights several concerns SMEs have about going public, including the potential loss of control, increased reporting and disclosure obligations, and difficulties attracting investors.
To overcome these challenges, the WFE suggests the following actions: “Regulators should launch educational programs to inform SMEs about the benefits of listing and provide guidance on ownership structures that protect control.
“Regulators should collaborate with exchanges to develop SME platforms or segments that reduce regulatory burdens and address the specific needs of smaller businesses.
“Exchanges should continue to promote SME investments by offering reduced fees, encouraging research coverage, and conducting investor education programs”.
Head of Research at the WFE, Pedro Gurrola-Perez commented: “Rapidly raising funds for SMEs in the capital market is crucial for their development and prosperity.
“Adopting these initiatives for specific platforms or venues provides an alternative access to capital previously closed to SMEs and benefits the financial market as a whole, with a greater degree of transparency and more investment opportunities than if these businesses stayed private.”
CEO at the WFE, Nandini Sukumar said: “Exchanges are recognising the needs of SMEs and are finding ways of adapting listing requirements to match those needs while keeping adequate levels of transparency to ensure efficient markets.
Only when the whole financial ecosystem takes action will we see global prosperous SME markets? Policymakers need to consider how best they can enhance the attractiveness of their domestic exchanges through initiatives such as tax incentives or the simplification of listing regimes.”