The Board Meeting of Indian Securities Market Regulator SEBI was held on June 21st 2017 deciding upon certain key issues like relaxations for restructuring of distressed assets; strengthening of ODIs/ P-Notes norms; consultative paper on easing FPI access etc.
Simultaneous to the Board Meeting, the Board further allowed participation of Category-III AIFs in the Commodity Derivatives Market by issuance of Circular No. SEBI/HO/CDMRD/DMP/CIR/P/2017/61 dated 21st June, 2017.
A quick glance of these recent developments are as following:
- Proposed Amendments to various SEBI Regulations:
- Relaxations w.r.t pricing norms of preferential issue under ICDR Regulations, 2009 and open offer under Takeover Regulations, 2011 which are presently available to lenders (mainly Banks and other Financial Institutions) undertaking restructuring of distressed listed companies through Strategic Debt Restructuring (SDR) are now proposed to be extended to Lenders under other restructuring schemes undertaken in accordance with RBI guidelines. Also, such relaxations shall now further be available to new investors who acquire shares of such distressed listed entities pursuant to such restructuring schemes from the Financial Institutions and/or Banks, although proposed relaxations will be subject to -
- approval by the shareholders of the companies by special resolution; and
- lock-in of their shareholding for a minimum period of three years; and
- It is also decided that the acquisitions pursuant to resolution plans approved by NCLT under the Insolvency and Bankruptcy Code, 2016 will be exempted from open offer requirements under Takeover Regulations, 2011.
- As per the existing provisions of ICDR, Category-I AIFs (Alternate Investment Funds) are exempted from the requirement of Lock-in period of the Pre-IPO holding. It is decided in the meeting to extend this relaxation to Category-II AIFs also.
- As a step to further strengthen regulations on Offshore Derivative Instruments (ODI)/P-notes, the Board approved the following amendments in FPI Regulations, 2014 -
To carry out above changes necessary amendments will be brought in the ICDR Regulations, 2009 and Takeover Regulations, 2011.
- Levy Regulatory fee of US$1000 on each ODI subscriber once every 3 years from 1st April, 2017, this fee shall be collected by the respective ODI issuing FPI.
- Prohibit issuance of ODI against derivatives except on those derivatives which are used for hedging purpose.
- Accessibility to FPIs for investing in Indian Securities Market has been proposed to be eased. Following are the actions proposed:
- Expanding the eligible jurisdiction SEBI proposes to register category I FPIs from countries having diplomatic tie-ups with India.
- Broad based requirements for an offshore fund shall be relaxed and exemptions which were only available to investors of such broad based funds for e.g. banks, is proposed to be extended to other institutional investors also.
- Fit and proper criteria for FPIs will be simplified and rationalized.
- FPIs operating under the Multiple Investment Managers (MIM) structure and holding FVCI registration may be allowed to appoint multiple custodians.
Now, the Category-III AIF can invest in the commodity derivatives market with immediate effect, subject to the following conditions:
- Category-III AIFs can trade in commodity derivatives market as ‘clients’ subject to adherence of all rules and regulations may be applicable to clients and provisions of SEBI (Alternative Investment Funds) Regulations, 2012 and circulars issued thereunder.
- Such AIFs shall invest not more than 10% of the investable funds in one underlying commodity.
- The existing AIFs proposing to invest in commodity derivatives market shall first disclose such proposal in Private Placement Memorandum and take consent of existing investors. Further, an exit opportunity shall be provided to dissenting investor(s).
- AIFs may engage in leverage or borrow subject to consent from existing investors in the fund and subject to maximum limit as specified by Board from time to time. Further, AIFs shall be subject to reporting requirements as may be specified by SEBI.
- Further, if applicable, AIFs to comply with RBI notifications all guidelines of RBI under FEMA, 1999.
The decisions and initiates made in the Board meeting of SEBI when seen in consolidation is a collective step to enhance capital market activities in the Country and at the same time to maintain transparency in the operations. Allowing Category III AIFs in Commodity derivatives will help in enhancing liquidity and better price discovery. The proposed consultative paper for growth and development of Equity Derivatives Market will introduce more instruments in the capital market and the easing of accessibility of FPIs in the securities market will give a boost to the Indian Securities Market. At the same time, tightening the regulations towards Offshore Derivative Instruments is also a welcome step to ensure that unregistered entities are not allowed to take shield of registered FPI and can route the funds without having to disclosure their identities and sources.