Just when you thought regional stock exchanges were safely dead and buried, a new SEBI committee report has brought the issue back to prominence. (The SEBI website is bad; here's the report.) It isn't a good report, by SEBI standards, but it needs to be tracked because it can be raw material for doing some damage. As usual, India excels at outstanding editorial commentary: read the edits in Business Standard, Economic Times.
One key proposition that seems to be getting a free pass is the idea that "Regional stock exchanges are good for SMEs". I think this statement is wrong. If a stock has the size, asymmetric information, equity vol, and ownership structure required to achieve significant trading, then it will do so on NSE anyway. NSE does not have a physical floor - there is no limit to the number of firms that can get listed on NSE. If a stock lacks these characteristics, then switching from NSE to (say) Delhi Stock Exchange will certainly not do the trick. If anything, NSE has the eyeballs: if an SME firm has a hope in hell of gaining the attention of investors, this is likely to happen more on NSE than on dinky exchanges.
Thus I believe that there are some interesting policy puzzles about liquidity for SME stocks, and I believe that we aren't doing enough to address these questions. But linking up the goals of RSEs with the dream of greater stock market liquidity for SMEs is just analytically incorrect.