In a move that would reassure foreign portfolio investors (FPIs), the Securities and Exchange Board of India (Sebi) said on Tuesday it broadly agrees with easier know-your-customer norms suggested by the committee headed by former Reserve Bank of India deputy governor HR Khan. Moreover, the regulator’s board has mandated that large companies must now access the bond markets for a fourth of their borrowings.
In addition, the Sebi board approved a fresh framework for the settlement of cases and a proposal that will allow foreign investors to trade in the derivatives market for commodities, except sensitive ones. The capital markets watchdog also introduced a new methodology to calculate the expense ratios for mutual funds and approved amendments to the delisting rules.
The Khan committee has suggested allowing non-resident Indians (NRIs), OCIs or overseas citizens of India and resident Indians to be allowed to hold non-controlling stake in FPIs, saying no restriction should be imposed on them to manage non-investing FPIs or Sebi-registered offshore funds. It said NRIs should be allowed to invest as FPIs if the single holding is under 25% and group holding under 50% in a fund and also suggested that erstwhile PIOs or persons of Indian origin should not be subjected to any restrictions. The committee also recommended allowing clubbing of investment limits for well-regulated and publicly-held FPIs having common control.
The Sebi board also mandated on Tuesday that from April next year, companies must raise 25% of their incremental long-term borrowings in a year, in the bond markets. These are companies that have outstanding borrowings of Rs 100 crore or more and command a credit rating of AA or better. The watchdog also allowed promoters to give a counter-offer in a case of voluntary delisting, if the price discovered through the reverse book-building process is not accepted by them. However, the counter-offer should not be less than the book value and delisting will be successful only if it is accepted by such number of public shareholders that the post offer promoter shareholding reaches at least 90%. It has been decided to amend the regulations to provide that promoters will have to give the exit to public shareholders within three months of delisting from recognised stock exchanges.
With a view to making expenses of asset management companies (AMCs) more transparent, the regulator directed that all commission and expenses must be borne by the scheme and not from the AMC/associate/sponsor/trustee.
Further, it has asked mutual funds to adopt the full trail model of commissions for all schemes without any upfront commission being paid or trail commissions being made to be paid upfront. However, Sebi has allowed a carve-out for upfronting trail commissions for systematic investment plans subject to some conditions.
Sebi also reduced the time period for the listing of public issues. The regulator cut the time for the listing of issues from T+6 days to T+3 days. “The compression in post-issue timelines and the consequent early listing and trading of shares will benefit both issuers as well as investors,” the regulator said.
Sebi also approved the framing of the Settlement Proceedings Regulations. As per the new regulations, Sebi may not settle any proceeding if it is of the opinion that the alleged default has a market-wide impact, loss to investors or affects the integrity of the market. Further, Sebi may not settle any proceeding where the applicant is a wilful defaulter, a fugitive economic offender or has defaulted in payment of any fees due or penalty imposed under securities laws. A new provision dealing with “settlement with confidentiality” to any person that provides material assistance to the board in its fact-finding process and proceedings has been included.
Sebi approved amendments to Prohibition of Fraudulent and Unfair Trade Practices (PFUTP)
Regulations and Prohibition of Insider Trading (PIT) regulations.
The amendments to the PFUTP regulations relate to definition of ‘dealing in securities’ expanding the scope of the regulations to include employees and agents of intermediaries and strengthening of the deeming provisions for fraud to include activities such as misleading information on digital media, front-running by non-intermediaries, mis-selling of securities and services related to securities, misutilisation of client account and diversion of client funds, manipulating benchmark price of securities.
Amendments to the PIT regulations include bringing further clarity on sharing of unpublished price sensitive information (UPSI) for due diligence or legitimate purposes and the creation of a database of persons with whom UPSI is shared, among other things.