SEBI

Key highlights of the SEBI Board Meeting held on 30th September 2022

The SEBI is established with the primary purpose of protecting the interest of investors and regulating the financial instruments in the market. Under SEBI ACT, 1992^[1], the SEBI is empowered to establish a board that will meet at such time as may be prescribed. The members at the SEBI board meeting are allowed to decide on matters related to the importance of regulating the financial instruments in the market. Based on powers assigned to the board, one such SEBI board meeting has taken place and, in consequence, has issued a press release on 30^th September 2022 that dictates various decisions the board members make on the matter listed below.

I. Facilitation of Online Bond Platform and Reduction in the Face Value of Privately Placed Debt

The members of the SEBI board meeting have approved the following proposals:

1. The meeting is concluded with the remark that the online bond platform providers shall be registered online with SEBI as stock brokers and should be placed under the debt segment of stock exchanges.
2. There shall be a procedural circular that specifies the details and mechanics of operations of these online bond platform providers.
3. The face value of the privately placed debt securities could be reduced.

II. Disclosure of KPI (Key Performance Indicators) and Price per Share on Public issues

The members of the SEBI board meeting have approved various proposals on various matters that would ease the disclosure of key performance Indicators and price per share of Public issues based on past transactions and past fundraising.

1. The board members have approved the proposal to mandate the issuer to disclose the KPI and price per share of public issues. It shall be done by the issuer keeping past transactions and fundraising in view, and be mentioned under the “Basis for Issue Price” section of the Offer Document and price band advertisement.
2. The issuer, before issuing the share before IPO, shall disclose the details in relation to the pricing of shares that are based on past transactions and past fundraising from investors:
3. The disclosure of price per shareof Issuer Company shall be made during 18 months period before listing on IPO. Further, the share pricing shall be  based on:
4. Primary or New Issue of share
5. Secondary Sale or Acquisition of Shares
6. If the issuer company does not have any transaction related to the primary or new issue of shares and secondary or acquisition of shares during 18 months before listing at IPO. In that case, the information on price disclosure shall be based on the last 5 Primary or Secondary transactions, provided that the transaction shall not be older than3 years before listing at IPO.
7. The information that shall be disclosed in the offer document and price band advertisement are:
8. Weighted average cost of acquisition, based on primary and secondary transactions
9. IPO floor Price
10. Price cap
11. There shall be a recommendation from the committee of independent directors that the price band is correctly evaluated based on quantitative factors.

III. Faster Pay-out of Redemptions and Dividends to Unitholders

The members at the SEBI board meeting have approved to make amendments to the SEBI (Mutual Funds) Regulations, 1996. The board proposed that the current time period of 10 working days and 15 days shall be replaced with 3 working days and 7 days, respectively, to pay redemptions and dividends to unit holders.

IV. Net settlement of Cash Segment and F&O Segment

The members at the SEBI board meeting have proposed the net settlement framework to bring efficiency, mitigate risk and reduce the margin requirements after expiry. It is proposed that the obligations arising from the cash settlement and physical settlement of the F & O segment shall be settled on a net basis upon the expiry of the stock derivative rather than settling them separately. This benefit is provided to all the investors except those who are mandatorily required to do delivery-based transactions.

V. Pre-Filing of Offer Document as an Alternative Mechanism

The member at the SEBI board meeting has approved the proposal on pre-filing the offer document as an alternative mechanism for an initial public offer on the stock exchange’s main board. It is contended that the prefilling technique shall allow the issuer to have limited interaction and protect them from publicising any sensitive information. Further, the document relating to the observation made by the SEBI on incorporation will be available to the investors for at least 21 days, allowing them to make an informed decision.

VI. Flexibility in Appointment and Removal of Independent Director

The member at the SEBI board meeting approved the proposal of introducing a new provision in the SEBI (LODR) Regulations, 2015. The new provision shall provide for the appointment and removal of independent directors in listed entries.

Currently, the appointment, re-appointment and removal of independent directors shall be made through a special resolution. Still, the induction of the new provision provides an alternative method of appointment and removal of independent directors. Under the alternative method, if the special resolution for the appointment or removal of the independent directorsdoes not get the requisite majority, then the following threshold shall be taken:

1. Ordinary Resolution
2. Majority of Minority Shareholders

If the above two thresholds are more than the special resolution in the same voting process, then it is considered that such a resolution is adopted.

VII. Minimum Holding by Sponsors

The members at the SEBI board meeting have approved the proposal of making amendments to the SEBI (Real Estate Investment Trusts) Regulations, 2014. It is also proposed that there shall be a reduction in the minimum holding requirement of units from 25 % to 15% by the sponsors on the total outstanding units of Real Estate Investment Trusts on a post-initial offer basis.

VIII. Unlisted Investment Trust

The members of the SEBI board meeting have approved the proposal of discontinuing the different regulatory frameworks for unlisted Infrastructure Investment trusts.

IX. Tenure of AIF schemes and Name Change of Manager or sponsor

The members at the SEBI board meeting have approved to amend the SEBI (Alternative Investment Funds) Regulations, namely:

1. The timeline for declaring the first closure of the scheme of AIF (Alternative Investment Scheme) along with the minimum time period if such disclosure may be declared.
2. The tenure for close-ended schemes of AIF shall be calculated from the date of declaration of First closure.
3. The prior approval of SEBI is needed if there is a changein the manager or sponsor.

X. Modification in Offer for Sale through Stock Exchange

The member at the SEBI board meeting has approved the various modifications in the existing framework of the offer for sale through Stock Exchange so that there will be more flexibility and efficiency in the offer for sale framework.

1. Removal with the requirement of 10% shareholding for the non-promoter shareholders who are willing to offer shares through the offer do sale mechanism.
2. The cooling-off period shall range from+ 2 weeks to +   12 weeks and be based on the liquidity of securities of such eligible company.
3. The Retail Investors are now allowed to bid for the unsubscribed portion of the non-retail Segment.
4. The scheme of the offer for sale of their holdings is now made available to
5. Unit holders
6. Sellers of listed Real Estate Investment Trust
7. Infrastructure Investment Trust

XI. Monitoring of Utilisation of Issues proceeds

The members at the SEBI board meeting have approved the proposal of monitoring the utilisation of funds that the issuer company raises through the preferential issue and qualified Institutions placement. The Credit rating agencies shall carry out the monitoring for the issues exceeding Rs 100 crore. This will enable the shareholders to monitor the status of the funds raised by the company.

XII. Schemes of Arrangement

The members at the SEBI board meeting have approved the amendments to the SEBI (LODR) Regulations, 2015, namely:

1. A provision shall be introduced for the scheme of arrangement for entities which have:
2. Listed Non- convertible Debt Securities
3. Non-convertible Redeemable Preference Shares

Moreover, the scheme of arrangement or draft scheme of arrangement shall be filed with the stock exchange to obtain NOC (No Objection Letter) upon payment of requisite fees.

• The unclaimed amount lying in the company’s escrow account for more than 7 years concerning non-convertible securities shall be transferred to IEPF following Section 11 of the SEBI Act, 1992.
• There shall be some leverage in the required timeline in submitting the financial results.
• There shall be clarity in the provisions relating to disclosure of line items or ratios, publication of results in newspapers etc. The clarity will bring uniformity to the disclosure requirements with the specified securities.

XIII. Strategic Disinvestment of PSUs and Consideration payable under Open Offer

The members at the SEBI board meeting have approved the proposal to remove the requirement of 60 days Volume Weighted Average Market Price to determine the open offer price in case of disinvestment of PSU companies. The open price offer is determined according to the takeover regulations; it is a “Volume Weighted Average Market Price” or “VWAMP” of a share that is taken for a period of 60 trading days immediately preceding the date of the public announcement date.

It is contended that since the Strategic disinvestment of PSU takes place through a public announcement at different stages, namely:

1. Approval of transactions by CCEA ( Cabinet Committee on Economic Affairs)
2. Expression of Interest
3. Shortlisting of Bidders 
4. Request for proposal release

Therefore, it is necessary to dispense with a provision for a timeline so that there will not be any impediment in the process of disinvestment of PSU.

Moreover, the board has also dispensed with the requirement of depositing cash under the open offer. It is approved that the acquirer, under the open offer, can submit the unconditional and irrevocable bank guarantee for the entire consideration. However, such a guarantee must be issued by a scheduled commercial bank having an “AAA” rating on any of its long-term debt.

XIV. Inclusion of Mutual Funds under SEBI (Prohibition of Insider Trading) Regulations, 2015

The members at the SEBI board meeting have approved the proposal to make amendments to the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 by the inclusion of a separate chapter for trading in the units of mutual funds, including:

1. Definition of Unpublished Price Sensitive Information, general information and other related terms of mutual funds
2. Separate code of conduct for designated persons dealing in mutual funds
3. Reporting and monitoring the requirement of mutual funds by the designated person.

 XV. Orderly winding down of clearing corporations

The members at the SEBI board meeting have approved the proposal to make amendments in the Securities Contracts (Stock Exchanges and Clearing Corporations) Regulations, 2018 by way of inserting a provision that will provide the clearing corporations with a framework for orderly winding up of its operations and services. It is required that clearing corporation framework shall consist of:

1. Timely and orderly settlement
2. Cessation or Transfer of positions
3. Transfer of mentioned assets to other clearing corporation who will acquire an interest in the operations of wound-up CC:
4. Collateral
5. Deposits
6. Margins
7. Any other asset

Conclusion

The SEBI is a statutory body established with the primary purpose of regulating the financial market smoothly. Along with the protection of investors, it is under an obligation to frame rules and procedures that will regulate the working of recognised Stock exchanges. Under the SEBI Act, 1992, a SEBI board meeting shall be held at such time and shall decide on the necessary matters. The SEBI board meeting is held to decide on the matters of disclosure of KPI and price of a share of a public issue, winding up of clearing corporations, removal with the requirement of VWAMP, monitoring of utilisation of mutual funds etc. The proposals approved by the board on the matters will provide smooth functioning of the financial instrument in the market and, resultantly, smooth the regulatory process and timeline for various securities.

Read our Article: Key Highlights of the SEBI Board Meeting (SEBI Press Release Dated 25 March 2021)