Sebi set to release regulation for insider trading, ESOPs & REITs

Written by fe Bureau | Mumbai | Updated: Jun 5 2014, 17:44pm hrs
SebiSebi chairman, UK Sinha: The Sebi regulations should be neutral to ownership.
The Securities and Exchange Board of India (Sebi) is in favour of extending the 25% minimum public shareholding norm to state-owned firms as well. The market regulator is also set to issue a series of new guidelines on prevention of insider trading, employee stock option plans (ESOPs), delisting of companies and real estate investment trusts (REITs). Besides, it is working on correcting the anomaly in the issue size of initial public offerings (IPOs).

We are talking to the government that the minimum public shareholding guidelines should not depend on who the owner is. The Sebi regulations should be neutral to ownership. Our objective is that the same set of rules should apply to all companies, including those owned majority by the government," Sebi chairman UK Sinha said on Wednesday on sidelines of a capital markets summit organised by the Confederations of Indian Industry (CII). Under Sebi's ICDR guidelines, listed private companies are required to bring their promoter holding to 75%.

Sinha acknowledged the anomaly pertaining to the issue size of IPOs, and said the regulator would take measures to rectify this soon. All companies with a post-issue capital of below R4,000 crore are required to offer at least 25% in an IPO while companies with above- R4,000-crore post-issue capital are required to offer at least 10%. This creates an anomaly in borderline cases, such as for companies with size close to the R4,000-crore mark.

Because of this anomaly, there is a tendency on part of corporates to show valuation of the company as R4,000 crore plus, Sinha said, while addressing the conference before meeting journalists.

Sebi is also favourably looking at increasing the quota of anchor investors in the qualified institutional investors (QIB) portion, but rejected the idea of trimming the retail portion in public offerings.

There have been demands of reducing the retail portion. Sebi is not in favour of this suggestion, Sinha said. At present, QIB's have an allocation of 50% of shares of the total issue size in book build IPOs whereas 35% and 15% is reserved for retail bidders and non institutional investors (HNIs), respectively.

Sinha said the regulator is in the process of finalising the 'prevention of insider trading' regulations. It is also working on revising the delisting norms, and will issue new guidelines for ESOPs.

Sinha said that many international investors are facing serious problems with corporate governance and legal systems in India. The Board is in dialogue with various stakeholders and will announce some of the measures as early as this month, he added.

Our larger goal is to provide a system where investors have trust and confidence in the market. You may find those measures difficult or challenging in the beginning, but please appreciate the idea behind those measures and cooperate with them... am sure we (India) can be a very good investment destination for domestic and foreign investors, Sinha said.

Sebi is eagerly awaiting clarity on the tax treatment of REITs and infrastructure investment trusts (variation of REITs). We had a public consultation on REITs and our papers are ready. We are in dialogue with the government because REITs won't succeed unless there is clarity on the tax treatment. Our expectation is that the clarity on tax issue will be announced very shortly. And if that happens, we will be coming out with our regulations, Sinha said.

Sebi is working towards simplification of norms pertaining to know your client (KYC) and KYC Registration Agency (KRA), and plans to introduce annual information memorandum with an aim to prevent corporates from filing repeated disclosures.

Sinha acknowledged the process of repeated filing of disclosures was cumbersome and will provide a centralised system. We are developing the IT infrastructure for that (filing of corporate disclosures) so the obligation on the part of corporates is minimised, Sinha said.