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Sebi Board meet: Side-pocket facility for debt mutual funds among key decisions

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Mumbai | Published: December 13, 2018 5:21:24 AM

The listing norms for start-ups will now require that 25% of the pre-issue capital be held by qualified institutional investors (QIIs) for at least a period of two years.

sebi, mutual fundsThe Sebi board decided that the clubbing of investment limits for FPIs would be based on common ownership of more than 50% or common control except in the case of appropriately regulated public retail funds.

Among the several decisions taken by the Securities and Exchange Board of India (Sebi) at a board meeting on Wednesday were those relating to easier norms for start-ups, a side-pocket facility for debt mutual funds, a bigger universe of companies that can use the OFS mechanism and changes in the norms for investments by foreign portfolio investors (FPI).

The listing norms for start-ups will now require that 25% of the pre-issue capital be held by qualified institutional investors (QIIs) for at least a period of two years. Currently, 50% of pre-issued capital needs to be held by QIIs.

The regulator had also reduced the minimum trading lot size from `2 lakh from the existing `10 lakh and lowered the minimum number of allottees to 50 from the existing 200.

The Sebi board decided that the clubbing of investment limits for FPIs would be based on common ownership of more than 50% or common control except in the case of appropriately regulated public retail funds.

Earlier, this was to have been done on the basis of beneficial ownership as per the Prevention of Money Laundering Act.

The OFS (offer for sale) mechanism shall now be available for companies with market capitalisation of Rs 1,000 crore and above; currently the top 200 companies are permitted to use this facility.

Ajay Tyagi, chairman, Sebi, said the decision to allow a side pocket had been triggered by the recent crises in the NBFCs sector. “It is in the interest of retail investors that toxic assets of mutual funds are segregated from assets which are doing well so that the net asset value of normal assets are maintained and there is less redemption pressure.” He added institutions were likely to redeem their investments in such cases leaving retail investors with poor portfolios and so the board felt it was time to give MFs this option.

Tyagi said the regulator was trying to expedite the adjudication against the National Stock Exchange (NSE) and other institutions for alleged violations of norms in a case pertaining to algorithm trading.

“Adjudication has started against 28 to 30 individuals and institutions apart from the NSE. We are applying the principles of natural justice in each case. We are trying to expedite the cases,” said Tyagi.

The regulator was also examining the complaint of a whistleblower against Sun Pharmaceutical Industries. “At this point, all I would like to say is that we are examining the allegations of the whistle blower,” Tyagi said.

Whole-time member Anant Barua said ICICI Bank was yet to file an application under the consent mechanism to settle the case relating to its former CEO Chanda Kochhar on alleged lapses in disclosures concerning dealings between the bank and Videocon group and certain dealings allegedly between Videocon Group and NuPower Renewables. The case was “pending before the adjudicating officer,” Barua said.

The market regulator also announced it would come out with a consultation paper on uniform valuation methodology for pricing of corporate bonds to and to evolve a supervisory and regulatory framework for pricing agencies.

Madhabi Puri Buch, Whole-time member at Sebi said, “The improvements will relate to valuations for bonds and papers which have a maturity of less than 60 days and also paper which has downgraded to below investment grade. “Right now the guidelines are very general,” Buch said. Currently, debt funds have mark-to-market for the papers maturing above 60 days.

Also read: Big reform from SEBI; allows segregation of distressed assets by mutual funds

The board discussed the proposal for allowing custodial services in goods underlying commodity derivative contracts in order to enable participation of institutional investors in commodity derivatives market. In this regard, the board approved the proposed amendments to the Sebi (Custodian of Securities) Regulations, 1996.

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