The capital market regulator is of the view that the dilution of the norms will increase risks (read disclosures and governance).

Instead of dilution, which triggers arbitrage and exploitation of regulatory inconsistencies, efforts should be to create market designs that will ensure liquidity to help for SMEs raise funds easily, Sebi executive director Pratip Kar said, addressing a seminar on capital market access for SMEs in Mumbai on Thursday.

Domestic investors have already had a bitter experience with SMEs when they raised funds through public offers in mid 90s.

The norms governing the fund raising process of SMEs were in nascent stage and many companies vanished after mopping huge funds from the market.

Earlier in his presentation, K P Krishnan, joint secretary, Union finance ministry, had highlighted the need to ease the listing requirements so that SMEs can raise funds easily. He also wanted a system that would make disclosures lesser costly for SMEs.

He said as a step to find platforms for SMEs to raise funds, the government has begun talks with original promoters of the now-defunct Over the Counter Exchange of India .

Indonext, an initiative of the Bombay Stock Exchange to provide trading platform for scrips listed on the regional stock exchanges, has not succeeded either. Any effort to promote a separate trading platform for SMEs will need bigger efforts for marketing and regulatory arrangements, Kar said.