The Securities and Exchange Board of India has tightened listing rules for small and medium enterprises (SMEs) and widened the definition of Unpublished Price Sensitive Information (UPSI) in an attempt to curb insider trading and safeguard investors’ interests.

The Sebi board, which met on Wednesday, said only those SMEs that had earned an operating profit of ₹1 crore in any two out of three previous financial years would be permitted to float an initial public offering (IPO).

Operating profit is defined as earnings before interest, depreciation and tax (EBITDA). The timeline to determine eligibility to float the IPO will be from the date that the entity files its draft red herring prospectus (DRHP).

The Sebi board said the offer for sale (OFS) by selling shareholders in an IPO shall not exceed 20 per cent of the total issue size. Moreover, the selling shareholders cannot offload more than 50 per cent of their holding. At present, there are no restrictions on OFS in an IPO floated by a small and medium company.

In another measure, the Sebi board broadened the definition of UPSI (information that is not public but which could impact a company’s share market price) to enhance disclosures by listed entities. The statement from the market regulator did not disclose the full details. This will be known once it comes out with a notification.

In a consultation paper, the regulator had said that certain material events like proposed fund raising, revision of credit rating, initiation of forensic audit must also be included in the definition of UPSI.

The Sebi board also approved an amendment to Sebi (Merchant Bankers) Regulations, 1992. The main features of the amendment are that merchant bankers, other than banks, public financial institution and their subsidiaries, shall undertake only permitted activities. They may carry out other regulated activities as a separate business unit.

Permitted activities have been specified and activities other than permitted activities by a merchant banker will have to be hived off to a separate legal entity with a separate brand name within two years.

The board meeting comes a day after Sebi issued an important circular on offshore derivative instruments (ODIs). In a clarification, Sebi said that it has not prohibited foreign portfolio investors (FPIs) from issuing ODIs. “FPIs have only been barred from issuing ODIs with derivative instruments as the underlying. As on date, there are no ODIs with derivative instruments as the underlying’’, it said.