Sebi action: Stricter default reporting rules; rights issue timeline reduced

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Updated: November 21, 2019 1:55:52 AM

The philosophy is about more information being out in the public domain that would help guide investors and other stakeholders, says regulator’s chairman

Securities and Exchange Board of India chairman Ajay Tyagi at a press conference in Mumbai on Wednesday (Express Photo: Pradip Das)Securities and Exchange Board of India chairman Ajay Tyagi at a press conference in Mumbai on Wednesday (Express Photo: Pradip Das)

In its board meet held on Wednesday, the Securities and Exchange Board of India (Sebi) announced a slew of regulations that include stringent default reporting norms for banks and financial institutions, regulations regarding portfolio management services (PMS) as well as reduction in the timeline for rights issue.

Sebi said that in the case of any default in repayment of principal or interest on loans from banks or financial institutions which continues beyond 30 days from the pre-agreed payment date, listed entities should disclose the default not later than 24 hours from the 30th day. Sebi said these provisions would be applicable from January 1, 2020.

Sebi chairman Ajay Tyagi told reporters during a press conference that the philosophy is about more information being out in the public domain that would help guide investors and other stakeholders. “It is an attempt to go towards openness and better disclosures,” he said.

The regulator also stated that its board has approved the increase in the minimum investment required by investors in PMS to Rs 50 lakh from the existing limit of Rs 25 lakh. Sebi also raised the net worth requirement of portfolio managers to Rs 5 crore from the existing level of Rs 2 crore. This requirement has to be met by the existing portfolio managers within 36 months, Sebi said.

“Discretionary Portfolio Managers to invest only in listed securities, money market instruments, units of mutual funds and such other securities/instruments as specified by SEBI from time to time. Non-discretionary/advisory portfolio managers to invest not more than 25% of their AUM in unlisted securities,” Sebi said.

Market participants indicated that although the guidelines on PMS are investor-friendly, it may limit the growth of the industry. Anish Teli, founder of IndexAlpha, said in a statement that the increase in investment limit and net worth criteria are likely to slow down the growth seen by the PMS industry, since the market of potential investors will reduce with the doubling of the minimum investment amount to Rs 50 lakh. “The increase in net-worth requirements to Rs 5 crore will also limit the number of new/existing businesses that want to obtain/retain the Sebi PMS registration,” he said.

In Wednesday’s board meeting, Sebi has also approved the proposal to reduce the timeline for the completion of the rights issue from the current T+55 days to approximately T+31 days. The regulator also introduced the dematerialisation and trading of rights entitlement on stock exchange platform.

When asked about the delays regarding whistleblower complaints, the Sebi chairman asserted such a thing cannot be justified. “We have taken many steps to expedite the case work. We have four members, 12 sanctioned posts of CGMs as adjudicating officers and we take this quasi-judicial work really seriously. There have been delays in the past, but if you see the disposals in the last one-and-a-half to two years, that has definitely improved from earlier years,” he said.

On being asked about how a few firms, especially promoter-driven companies, are expressing concerns on the regulation regarding splitting up the chairman and managing director posts, Tyagi said that sufficient time has been provided to implement the regulation. “These regulations were notified in May 2018 and we made them applicable from April 2020. The idea was to make people understand and plan for it,” he said.

Tyagi also made it clear that the regulator has taken note of the recent technical glitches on the NSE. “We will call them (NSE). This is something which should not happen. We will call them very soon,” he said.

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