In its board meeting held in New Delhi, Sebi also permitted foreigncorporates/individuals to invest in the Indian capital markets albeit withsome restrictions.

According to Sebi, both the mandatory and the non-mandatory recommendationsof the Birla panel would be applicable to the corporates through the listingagreement. For those seeking new listings, these recommendations would beapplicable with immediate effect. However, companies which figure in BSE'sspecified list or in the Nifty, the Birla Committee recommendations would beapplicable by fiscal 2000-2001. Companies which have a paid-up equity of Rs10 crore and more (or a networth of Rs 25 crore plus) would have to abide bythese norms by fiscal 2001-2002. Companies with a paid-up capital of Rs 3crore- Rs 10 crore would get an additional year as breather. Listed banksand financial institutions, which are incorporated under other statutes,would be exempt from these recommendations.

According to Sebi chairman DR Mehta, companies which do not adhere to thenorms would be punished. However, the punitive action would not be in theform of a delisting as "that would hurt small investors". The marketregulator and stock exchanges concerned could consider initiating criminalproceedings against an errant company. Besides the `stick approach', Mehtasaid, even a `carrot' in the form of better valuations for companies whofollow the norms would go a long way in ensuring compliance. ``Everycompany's annual report will now mandatorily have a disclosure on the levelof corporate governance achieved and that alone may ensure somecompliance,'' Mehta added.

For Internet-based trading, Mehta said, the regulatory framework was now inplace. ``However, each stock exchange will have to individually certify thespecifications and we hope the process will be kicked off within a month,''he added. While a client will necessarily have to go through a broker, histransaction time will be cut drastically under the new system. Based on anagreement with the broker, a client can log in using a password and he willreceive on-screen quotes. He punches his buy/sell order, which goes throughthe mainframe of a stock exchange through a filter of the broker. What thismeans is that the deal will be governed under the exposure/margin limit ofthe broker concerned.

To promote venture capital activities, Sebi also approved recommendations ofthe Chandrasekhar committee. Few recommendations like one nodal agency forapproval and an FII status would be decided by the government, Mehta said,as they were outside the purview of Sebi. But maters directly related toSebi like relaxation of entry norms for IPOs were approved. According to thenew norms, funding by a Sebi-registered venture capital fund would qualify acompany to float an IPO (akin to a project appraised and finance up to 10per cent by a bank or FI). The three-year profitability criterion will notbe applicable in this regard.

In order to lure more foreign inflows, Sebi also relaxed the entry norms forforeign corporate and individuals to invest in the Indian capital markets.Earlier these had to be through a pool of 20 people; now they can invest viaa registered FII. However, the total investment made by all these investorsin this category cannot be more than 5 per cent of the total paid-up capitalof the company (and that too, within the prescribed FII limit). According toMehta, ``This should not be termed as hot money as experience shows thatFIIs are more likely to withdraw from a country instead of individuals.''

Sebi has also allowed domestic asset management companies and Sebiregistered domestic portfolio managers to manage foreign investments throughthe portfolio investment route.

The market watchdog has also amended the regulation concerning disclosure ofmutual fund scheme portfolio. The present regulations provide thatscheme-wise portfolio of investments is to be disclosed by mutual funds intheir annual reports and despatched to unit-holders within six months fromdate of closure of relevant accounting year. Mutual funds will now berequired to send a complete statement of their scheme portfolios to allunit-holders within one month from the close of each half-year (March 31 andSeptember 30). However, the requirement of such disclosure shall bedispensed with if the statement of portfolio is published as anadvertisement in two newspapers.

The present regulations provide for despatch of redemption or repurchaseproceeds within 10 working days from the date thereof. There have beeninstances of delay in despatch of redemption warrants by some mutual fundsto the detriment of the unitholders.

In order to deter mutual funds from such delays, amendments to mutual fundregulations have been approved to provide for payment of interest to theunitholders. The interest on this delayed payment shall be borne by theasset management company at such rates as may be specified by Sebi for theperiod of delay. In addition, for such cases, the board may also initiateappropriate action for such violations.