In a slew of proposed reforms, regulator Sebi plans to tighten its settlement norms by making suspected defaulters pay more for any delay on their part while fresh steps will be taken to popularise new investment vehicles like municipal bonds, REITs and InvITs.
Among the proposed measures that are to be considered by Sebi board at its meeting tomorrow is allowing mutual funds to invest in a new class of ‘alternative securities’, which would initially comprise real estate and infrastructure investment trusts, a senior official said.
Also, the board is likely to discuss developments about the Tata group with respect to allegations of violation of corporate governance and insider trading norms. The matter related to Vijay Mallya and United Spirits is also expected to come up for discussion.
Suspecting “several thousand entities” of violating securities law to avoid taxes, Sebi plans to clamp down on those involved in stock manipulations and take action against all listed companies, along with their directors, found to be in cahoots with such operators.
Besides, Sebi will refer the findings of all the details about the beneficiaries and facilitators of such trade to the Income Tax department for further action.
Based on analysis, about 32,000 entities in various categories were identified for further examination, he added.
Sebi plans to give an option to all market intermediaries and companies to make their regulatory payments in digital mode. It will facilitate speedy and easy transactions while reducing failure due to payment gateway issues.
The regulator is looking to lower broker fee to Rs 15 per Rs 1-crore transaction from Rs 20 as part of calibration of various other fees collected by Sebi from different market intermediaries. It has been a long-pending demand of broker and market participants.
Even after reducing the broker fee, Sebi is expected to see an increase in its overall fee income as certain new charges, including filing fee for draft scheme of arrangements and processing fee on applications, will be levied.
Defaulters whose application for settlement of cases is delayed will soon be required to pay a non-refundable Rs 2,000 seeking condonation of the delay. Further, such entities will have to pay additional money in case there is more than 60 days of delay in applying for settlement.
Currently, settlement applications at pre show-cause notice stage and on suo-motu basis are treated equally. Pre show-cause notice is issued during investigation or on issuance of settlement notice after completion of probe and before initiation of enforcement action.
As a result, the official said there is little incentive for defaulters to come forward on their own before investigation or enforcement action. Among others, defaulters will be given 15 days from the date of intimation of settlement amount to remit the same.
The Proceeding Conversion Factor (PCF), used to arrive at the settlement amount, will be lower for entities filing voluntary or suo-motu settlement applications. With respect to cases of fraudulent and unfair trade practices, the reduction in PCF will be decided on the basis of evidence, disclosure and assistance provided during the investigation.
The rules pertaining to calculation of the indicative amount for settlement are also likely to be amended. In order to provide diversified options for investors, Sebi has proposed ‘alternative securities’ as a new asset class for investments by mutual funds. For now, it will have only REITs and InvITs.
The move is likely to help in attracting more number of investors into REITs and InvITs. A mutual fund will be permitted to invest only up to 5 per cent of their net asset value in units of a single issuer of alternative securities. The limit will be 10 per cent for total exposure to alternative securities. These caps will not be applicable in the case of index funds.
To boost municipal bonds, also known as muni bonds, Sebi is planning to amend the relevant regulations in order to provide criteria that are alternative to ‘net worth’ of the municipalities.
The concept of net worth basically applies to a corporate entity and might not be applicable to a municipality in absolute terms. To gauge the financial capacity of a municipality, an alternative criterion is being worked out, the official said.
According to the proposal, a municipality planning to issue bonds should not have negative net worth or material deficit as per its income and expenditure statement for three preceding financial years. Sebi could also come out with any financial criteria from time to time.
The board will also discuss the status of amendments to regulations related to REITs and InvITs.
Amendments to these regulations were notified in November last year and subsequently two InvITs have filed their offer documents with Sebi.
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Besides, the regulator will consider a proposal of calibrating the fees, upwards or downwards, for other regulatory works. It plans to levy a filing fee on draft scheme of arrangements on the lines of amount charged for placing offer documents.
Sebi observed that similar work and allocation of resources are involved in respect of processing of draft schemes of arrangements as it is for offer documents.
Further, it plans to charge fee for application under buyback regulations. It is considering to impose a processing fee of Rs 1 lakh on an application for relaxation of strict enforcement of Sebi’s ICDR (Issue of Capital and Disclosure Requirements) regulations. Currently, no fee is being charged for processing of such requests.
Also, it plans to revise upwards the panel exemption fee under takeover norms to Rs 5 lakh from Rs 3 lakh. With regard to regulatory fee from exchanges, Sebi will continue with the present fee structure.