The Securities and Exchange Board of India (SEBI) has approved many initiatives in its Board meeting held on March 15, 2024 mainly emphasizing on the ease of doing business, as detailed here-under:
SEBI Approves Beta Launch of Optional T+0 Settlement
SEBI Board approved the launch of an experimental T+0 Settlement system Beta version. The key points include:
i) Initial implementation will focus on 25 securities (scrips).
ii) Only select brokers will be eligible to join in this Beta version.
iii) SEBI will engage in further consultations with stakeholders, seeking feedback from participants of its Beta version.
iv) The Board will assess the progress of the Beta version three months and six months post implementation date.
v) Based on this review, SEBI will determine its next course of action regarding the wider implementation of an optional T+0 settlement system.
Transition to an optional T+0 settlement system aims to deliver faster settlement of trades, subject to stakeholder feedback and phased implementation approach.
SEBI Exempts Additional Disclosure Requirements for Certain FPIs
SEBI approved a proposal that will exempt certain Foreign Portfolio Investors (FPIs) from additional disclosure requirements, provided they meet certain conditions. This exemption covers FPIs who meet:
i) The FPI invests more than 50% of its Indian equity assets under management (AUM) in one corporate group.
ii) FPI’s holdings in listed companies with no known promoter are concentrated.
iii) An FPI’s holdings within its corporate group (excluding any holdings with no identified promoter) do not exceed 50% of India equity AUM.
iv) FPIs with more than 50% concentration who do not receive exemption fall below 3% of total equity share capital of companies without identified promoters.
FPIs that satisfy certain conditions will benefit from being exempted from additional disclosure requirements, making doing business simpler for them.
SEBI Relaxes Timelines for Disclosure and Documentation of Material Changes by FPIs
SEBI Board approved a proposal that will shorten timelines for FPIs to disclose and submit documents concerning material changes to their information. Key changes include:
i) Material changes will be divided into two distinct groups, Type I and Type II.
ii) FPIs must notify their DDPs within seven working days after any Type I material change occurs, according to current requirements; any supporting documents related to those changes, if applicable, can now be submitted within 30 days rather than seven working days as previously required.
iii) FPIs must notify their DDP of Type II material changes along with supporting documents within 30 days of any material modifications occurring on site.
Relaxation of timelines for disclosure and submission of supporting documentation aims to facilitate ease of business for FPIs operating in India.
SEBI Enhances Ease of Doing Business for FPIs
SEBI Board approved several proposals designed to facilitate ease of doing business for FPIs by giving more freedom in dealing with securities post registration lapse. Some key proposals are:
i) FPIs whose registration has lapsed due to nonpayment of registration fees will have 30 days from their registration’s expiration date to reinstate it and dispose of securities holdings they own.
ii) An FPI that elects not to reactivate its registration within 30 days will have 180 days in which to dispose of its securities.
iii) When there has been an adverse change to an FPI’s compliance status in their home jurisdiction or non-submission of documents for reclassification from Category I to II classification, FPIs will have up to 180 days or the end of registration block to dispose of securities before their licenses lapse.
iv) FPIs will have 180 days from their specified deposit deadline to dispose of securities they own; failing which they will incur an additional financial disincentive equaling 5% of sale proceeds that will go toward SEBI’s Investor Protection and Education Fund (IPEF).
v) Any securities left unsold after 180-days will be treated by the FPI as having been compulsory written off.
vi) Existing cases involving securities held in accounts belonging to FPIs with expired registration will receive an opportunity of 360 days (180 without financial disincentive and 180 with 5% disincentive) to dispose of these securities.
vii) Written-off securities will be placed into an escrow account and sold off at market price by an exchange-empanelled broker in an effort to transfer proceeds back to SEBI’s IPEF fund.
These measures aim to give FPIs more flexibility and an orderly process when handling securities after expiry of registration, protecting both investors’ interests and those of the market.
Measures to Facilitate Ease of Doing Business for Companies Raising Funds through IPOs
SEBI Board approved amendments to its 2018 SEBI (Issue of Capital and Disclosure Requirements) Regulations that aim at simplifying business for companies raising capital through initial public offerings (IPOs) or other capital-raising activities. Key amendments include:
i) The requirement of providing one percent security deposits when offering equity shares publicly/rights issues has been eliminated.
ii) Promoter group entities and non-individual shareholders holding over five percent of post-offer equity share capital can make contributions toward the minimum promoter contribution (MPC) without being identified as promoters.
iii) Equity shares obtained through conversion of compulsorily convertible securities held for at least one year prior to filing of Draft Red Herring Prospectus (DRHP) will satisfy MPC requirements.
iv) Should an OFS expand or contract in size, fresh filing requirements will depend solely on either its issue size in rupees or share count as disclosed in its draft offer document, not both criteria simultaneously.
v) An issuer will now have more flexibility in terms of extending bid/offer closing dates by at least one day in cases of force majeure events than under current requirements of three days minimum extension.
These amendments aim to streamline regulations and procedures related to initial public offerings (IPOs) and capital-raising activities, thus making doing business easier for companies seeking funds from capital markets.
Eased Compliance Requirements for Listed Companies
SEBI Board approved amendments to its SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 in order to facilitate ease of doing business for listed entities by relaxing some ongoing compliance requirements. Key among them include:
i) Market capitalization-based compliance requirements for listed entities will now be determined based on an average of six month market caps ending December 31 rather than single day market capitalization as of March 31. Furthermore, a sunset clause of three years was implemented for these provisions to expire.
ii) The timeline for filling vacant Key Managerial Personnel positions that require approval by statutory authorities has been extended from three months to six months.
iii) Timing requirements for prior notification of board meetings have been harmonized and reduced to two working days.
iv) To give listed entities more flexibility when scheduling Risk Management Committee meetings, the maximum allowed interval between consecutive meetings has been extended from 180 days to 210 days. This change allows more scheduling flexibility.
These amendments aim to ease compliance burden for listed companies while offering greater flexibility when adhering to regulatory requirements, making doing business in this arena simpler for everyone involved.
SEBI Introduces Uniform Approach for Verification of Market Rumors by Equity Listed Entities
SEBI Board approved a proposal that will provide equity listed entities with a uniform approach for verifying market rumors, created in consultation with Industry Standards Forum (ISF), comprised of ASSOCHAM, CII and FICCI as well as stakeholder consultation. Key elements of the approved approach are as follows.
i) Objective and uniformly assessed criteria have been defined to verify any allegations related to material price movements of listed entity equity shares as indicators for potential rumors.
ii) Where pricing norms have been prescribed under SEBI Regulations, transactions that take place without significant price movements will be treated as unaffected transactions provided rumor has been confirmed within 24 hours from material price movement occurring as per regulatory mandates.
iii) Promoter, directors, key managerial personnel and senior management must promptly respond to market rumors as required by a listed entity.
iv) Under SEBI (Prohibition of Insider Trading) Regulations 2015, unconfirmed events or information reported through print or electronic media cannot be considered “generally available information”.
A uniform approach aims to streamline the verification of market rumors by equity listed entities, guaranteeing consistency and transparency when responding to such situations.
SEBI Allows Category I and II AIFs to Encumber Equity Holdings in Infrastructure Companies
SEBI Board approved a proposal granting flexibility to Alternative Investment Funds (AIFs) of Categories I and II that create equity holdings within infrastructure-focused investee companies to impose restrictions or other burdens on these investments. Key objectives behind this move:
i) Facilitating business for AIFs and creating an ecosystem in which private capital can complement various modes of infrastructure financing effectively.
ii) Enabling Category I and II AIFs to create pledges or liens against equity shares they hold in investee companies engaged in infrastructure sectors.
iii) Encumberances are intended to facilitate debt and loan raising efforts of invested infrastructure companies.
iv) Infrastructure sectors covered under this provision are listed on the Harmonized Master List of Infrastructure Subsectors issued by the Government of India.
v) Encumbrance by AIFs will be subject to certain conditions, including meeting relevant Reserve Bank of India regulations.
This decision seeks to enable AIFs to leverage equity investments made in infrastructure companies as leverage for financing efforts by such companies, thus encouraging private capital participation in infrastructure development.
SEBI Introduces Due Diligence Requirements for AIFs
SEBI Board approved a proposal to introduce due diligence measures for AIFs, their managers, and key management personnel (KMPs) when dealing with investors and investments of AIFs. This move’s key objectives include:
i) Ensuring AIFs do not assist with circumventing regulations administered by financial sector regulators.
ii) Enhancing trust within the AIF ecosystem by mandating verifiable compliance with due diligence requirements.
iii) Provide regulatory comfort necessary for the implementation of other Ease of Doing Business proposals/measures related to AIFs and thus facilitate sustained capital formation.
SEBI plans on working closely with the Industry Standards Forum for AIFs to formulate specific standards relating to verifiable due diligence activities for investors and investments of AIFs. This should ensure consistency and clarity when carrying out these requirements.
SEBI intends for these due diligence measures to strengthen the integrity of India’s AIF ecosystem while creating an ideal setting for additional EoDB initiatives to come forth, furthering growth and development within this industry.
Timeline Extended for Mandatory Applicability of Listing Norms for HVDLEs
SEBI Board approved a proposal to extend the mandatory applicability and compliance timelines of listing norms applicable to High Value Debt Listed Entities (HVDLEs). Key aspects of this decision:
i) HVDLEs will no longer have to comply with listing norms specified under Regulations 16 through 27 of SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015. These were previously applicable.
ii) The timeline for mandatory application of these listing norms and compliance requirements to HVDLEs has been extended until March 31, 2025.
iii) HVDLEs refer to entities which have issued debt securities with an issue size exceeding Rs 500 crore on an exchange.
SEBI’s intention in extending this timeline is to give HVDLEs additional time to comply with listing norms and disclosure requirements prescribed in their listing agreements, thus creating an easier transition and implementation of regulations in this market.
Additional Flexibility to AIFs for Dealing with Unliquidated Investments Beyond Scheme Tenure
SEBI Board recently approved proposals that offer additional flexibility to Alternative Investment Funds (AIFs) and their investors when dealing with unliquidated investments beyond expiry of schemes’ tenures. Key decisions were:
i) AIFs will be permitted to maintain unliquidated investments which could not be sold due to lack of liquidity during winding-up by entering into a Dissolution Period.
ii) Unliquidated investments carried over into the Dissolution Period will be recognized in accordance with SEBI guidelines to record them as part of your track record and report back to Performance Benchmarking Agencies.
iii) Entering into a Dissolution Period replaces the previous requirement to launch a Liquidation Scheme when dealing with investments that remain unsold.
iv) SEBI has also approved an extended Liquidation Period of one year to deal with unliquidated investments whose original Liquidation Period had already passed or will pass within three months from notification of changes to AIF Regulations; subject to certain conditions.
These measures aim to give AIFs and their investors more flexibility when managing unliquidated investments or meeting liquidity challenges, while at the same time guaranteeing transparency and proper reporting on these investments.
SEBI Introduces Framework for Issuance of Subordinate Units by Privately Placed InvITs
SEBI Board approved amendments to its SEBI (Infrastructure Investment Trusts) Regulations 2014 that create a framework for InvITs issuing subordinate units privately placed by them, under their infrastructure investment trusts (InvIT). Key aspects of this framework:
i) At present, this framework only applies to privately placed InvITs.
ii) The purpose is to use subordinate units as an effective mechanism for closing any valuation gaps caused by discrepancies between an asset’s valuation by its Sponsor (who acts as seller of said asset) and that of an InvIT (acting as buyer of said asset).
iii) This framework seeks to facilitate InvIT purchases of infrastructure assets by addressing possible valuation mismatches.
iv) Subordinate unit sales will be subject to risk reduction measures to safeguard investor interests.
SEBI intends for this framework to facilitate privately placed InvITs to acquire infrastructure assets more effectively by addressing valuation discrepancies through subordinate units issued. This initiative should foster growth and development within India’s InvIT sector.
SEBI Approves Stock Exchange as Research Analyst and Investment Adviser Supervisory Body
i) SEBI Board granted recognition to a stock exchange as both an “Research Analyst Administration and Supervisory Body” (RAASB) and an “Investment Advisers Administration and Supervisory Body” (IAASB).
ii) Similar to its Investment Advisor counterpart, the Research Analyst Accreditation and Accreditation Services Board framework will remain fee neutral for Research Analysts.
iii) To facilitate ease of doing business and ensure smooth operations under the RAASB/IAASB framework, the Board also approved the de facto registration of existing registered Research Analysts (RAs) and Investment Advisers (IAs).
SEBI Press Release 05/2024 dated 15/03/2024: Board Meeting Minutes