The Securities and Exchange Board of India (Sebi) on Tuesday asked asset management companies (AMCs) to put in place an institutional mechanism to deter potential market abuse, including front-running, even as it eased the rules for non-resident Indians (NRIs), overseas citizens of India (OCIs) and resident Indians (RIs) to participate in foreign portfolio investors (FPIs) based out of International Financial Services Centres (IFSCs) in the country.
At a board meeting in Mumbai, the capital markets regulator agreed to provide flexibility to venture capital funds (VCF) to deal with unliquidated investments of their funds.
The regulator also approved amendments to the Sebi (Infrastructure Investment Trusts) Regulations, 2014, and Sebi (Real Estate Investment Trusts) Regulations to make unit-based employee benefit scheme available.
The mechanism to prevent fraud and front-running at AMCs will consist, among other things, of enhanced surveillance systems and, internal control procedures.
The markets regulator has exempted AMCs from recording face-to-face communication, including out-of-office interactions, during market hours but has increased the responsibility and accountability of the management and has directed that a whistleblower mechanism be put in place.
A regulatory framework was greenlighted to impart flexibility to increased contributions by NRIs, OCIs and RIs in the corpus of certain FPIs based in IFSCs in India and regulated by the IFSCA.
Sebi will permit 100% contributions, provided the FPI furnishes certain documents and information.
Alternatively, the FPIs would not be required to submit the documents if they meet some conditions, for instance, if the contribution of all investors is pooled into one vehicle or if the fund has a minimum of 20 investors with each investor contributing not more than 255 of the corpus.
Another condition is that a maximum of 20% of the corpus be invested in equity shares of an Indian listed entity. The FPIs must disclose if they hold more than 33% of their Indian equity assets in a single Indian corporate group or the FPI with the investor group holds more than Rs 25,000 crore of equities in the Indian market.
VCFs, the Sebi board said, would be given an option to migrate to AIFs (Alternate Investment Funds) and enjoy the benefits available to AIFs with regard to the extension of tenure, liquidation period and dissolution period for unliquidated investments. VCFs that migrate will not be subject to any additional investment conditions.