SEBI

SEBI’s Proposal for Compliance of Non-Convertible Securities

In FY 2023-24, the Hon’ble Finance Minister announced the need to simplify, ease, and reduce the cost of compliance for participants in the financial sector through a consultative approach. The SEBI’s ongoing effort ensures alignment of the regulatory framework for non-convertible securities (NCS). Further, SEBI also provided for establishing diverse working groups to simplify and ease compliance under SEBI (LODR) Regulations.

Navigate SEBI’s evolving compliance landscape easily by relying on SEBI consulting and regulatory services to align your non-convertible securities with the latest proposal or standards.

Overview of SEBI’s Proposal for Non-Convertible Securities

On August 16, 2024, the SEBI released a consultation paper comprising measures to streamline the business and its compliance requirements for non-convertible securities. This initiative is undertaken to align the regulatory framework for non-convertible securities with the regulation for equity-listed entities.

The SEBI’s proposal provides for aligning the provisions for approval & authentication of financial results, standardizing fraud &default disclosure requirements, reducing the timeline for recording date intimations, and mandating the use of XBRL format for filing & providing flexibility to ISIN restrictions for specific securities. Also, the SEBI’s proposal for compliance of non-convertible securities is open for review and comments till September 6, 2024.

Stay ahead in the financial sector through financial services and streamline compliance with SEBI for non-convertible securities.

Objective of SEBI’s Proposal for Non-Convertible Securities

The primary objective of SEBI’s proposal for compliance of non-convertible securities (NCS) is to strengthen the regulatory framework established to govern these financial instruments. The following are some of the objectives of SEBI’s proposal for non-convertible securities:

• Seek comments/suggestions to promote ease of doing business (EoDB);
• Enhance procedure for operating financial market operations;
• Reducing administrative burden for compliance;
• Promote greater efficiency in financial market operations;
• Review of budget announcement for protecting investors;
• Review of compliance requirements under SEBI (LODR) Regulations;
• Improving the overall market integrity of the non-convertible securities;
• Ensures increasing awareness and education among the investors.

Key Features of Proposal for Compliance of Non-Convertible Securities

The key features of the proposal for compliance of non-convertible securities, which recommends specific measures to promote ease of doing business (EoDB) for entities with listed non-convertible securities, are as provided below:

1. Alignment of Provision Regarding Approval & Authentication of Financial Results

The LODR Regulations ensure parity and alignment of provisions regarding approval and authentication of financial results for equity—and debt-listed entities. For this purpose, the SEBI proposed a modification in Regulation 52 (2)(b) of the LODR Regulations mandating that quarterly financial results be approved by the board of directors.

Additionally, the chairperson, managing director, whole-time director, or any other director of the listed entity must mandatorily sign the financial results submitted to the stock exchange.

2. Alignment of Provision Regarding Fraud/Default Disclosure

SEBI proposed aligning Clause A. 17 of Part B of Schedule III with Clause A .6 of Part of Schedule III of the LODR Regulations. Further, the provision entails the disclosure of events and information about fraud or default for equity and debt-listed entities.

Simply, the consultation ensures that the provision regarding disclosure fraud or default regarding price-sensitive information for entities having listed non-convertible securities aligns with that of equity/ debt-listed entities under Schedule III.

3. Reduction in Timeline for Intimation of Record Date to Stock Exchange

The Securities Exchange Board of India further proposed reducing the timeline for intimation of a record date to the stock exchange by an entity having listed non-convertible securities from at least 7 working days to at least 3 working days. These changes were made by the recommendations made by the working groups and deliberations held in the CoBoSAC meeting.

4. Filing of all Disclosure by Listed Entity

Next, the Securities Exchange Board of India further proposed a provision regarding filing all the disclosures made in the XBRL format for entities with non-convertible securities in debt/ equity-listed entities.

5. Relaxation from ISIN Restriction Limit for Unlisted ISINs

SEBI also proposed that the unlisted ISIN (outstanding as of December 31, 2023) converted into listed ISINs after the introduction of Regulation 62A is exempted or relaxed from the restriction limit of 14 ISINs specified in clause 1 of Chapter VIII of the NCS Master Circular.

Questions Regarding Compliance of Non-Convertible Securities

The recommendations made by the working groups on ease of doing business and subsequent deliberations with the Corporate Bonds and Securitization Advisory Committee (CoBoSAC) list the following questions for public comments, as provided below:

Question on Alignment of Provision for Approval & Authentication of Financial Results

The consultation paper released on August 16, 2024, raises the question of whether the proposal to align the provision regarding approval and authentication of financial results for entities having non-convertible securities with equity-listed entities is appropriate and adequate.

Question on Alignment of Provision for Disclosure of Fraud/Default

The question regarding the appropriate and adequate proposal for replacing clause A.17 of Part B of Schedule III along with clause A.6 of Part A of Schedule III of LODR regulations arose for extracting the public comments and suggestions.

Question on Time Reduction for Intimation of Record Date

The third question concerns whether the proposal to reduce the timeline for intimation of a record date to the stock exchange by entities having non-convertible securities from at least 7 to 3 working days is appropriate.

Question on Filing of all Disclosure by Listed Entity

The next question arose about the adequacy of the proposal drafted for disclosure filing by a legal entity with non-convertible securities with the stock exchange to be made in the SBRL format in line with regulation 36 (4) of the LODR Regulations.

Question on Relaxation from ISIN Restriction Limit

The next question concerns whether the proposal regarding the outstanding unlisted ISIN being converted into a listed ISIN after the introduction of Regulation 62A of the LODR regulations, which is to be exempted to compute the limit of 14 ISINs, is clause 1 of Chapter VIII of the NCS Master Direction appropriate or adequate.

Conclusion

The Securities Exchange Board of India’s proposed reforms for compliance with non-convertible securities are a significant step that ensures reporting requirements are comparable to those for equity-listed entities. The consultation paper is designed to simplify regulatory requirements, reduce the cost of compliance, and promote transparency to create an investor-friendly environment.   

Streamline your compliance with SEBI’s new regulations on non-convertible securities by visiting our website www.enterslice.com today to maintain seamless financial services.

FAQ’s