SEBI in its recent board meeting dated September 23rd 2016 has mulled upon several matters which are key for next phase development of securities market. Here’s the brief outline of the developments, directly from SEBI board room
- Direct access of Corporate Debt market to FPIs
- Category I and Category II FPIs will be allowed to directly access corporate bond market without brokers;
- Access will be allowed to Over the counter(OTC), Request for quote(RFQ) and Electronic Book Provider (EBP) platform of Regional Stock Exchange only for the purpose of proprietary trading;
- Necessary amendment in SEBI (Foreign Portfolio Investor) Regulations, 2014 and Rule 8(4) of Securities Contracts (Regulation) Rules, 1957 shall be made in this regard.
- Amendments to SEBI (Infrastructure Investment Trusts) Regulations, 2014 (“InvIts”) & SEBI (Real Estate Investment Trusts) Regulations, 2014 (“REITs”)
- Common amendments in REITs and InvITs:
- Investment in two level SPV structure through Holding Company (‘Holdco’) shall be allowed to InvIT, subject to following:
In lines with the permission granted to domestic institutions viz. banks, Insurance companies, Pension Funds etc. SEBI has now proposed to allow FPIs to directly access corporate bond market for its deepening. Following are developments which came at surface in the last board meeting:
- InvIT have sufficient shareholding in Holdco;
- InvIT have right to appoint majority directors in SPV(s);
- Holdco will be required to distribute 100% cash flows realized from SPVs and atleast 90% of the remaining cash flows.
- Reducing mandatory sponsor holding in InvIT to 15%;
- Rationalizing the requirements for private placement of InvIT;
- Clarifying the definition of ‘real estate property’;
- Introducing the concept of sponsor group;
- Allowing upto 20% investment in under construction assets.
Hitherto IA Regulations grants exemption from registration as an investment adviser to certain entities who are providing investment advice incidental to their primary activity. Now, to address gaps or overlaps in legal or regulatory standards, following changes are being proposed:
- Changes proposed for Mutual Fund Distributor/SEBI registered intermediaries:
- Reconsidering the exemptions granted from registration for providing investment advice as an incidental activity to their primary activity;
- A period of three years for obtaining necessary certification and comply with other requirements of IA Regulations will be granted, if the existing Mutual Fund Distributor seeks to migrate as an Investment adviser.
- Other proposed Changes/Clarifications:
- Business of investment adviser shall be segregated from existing ones and to be conducted through a separate subsidiary within a period of three years;
- An advertisement code shall be followed by the persons including the investment Advisers while issuing advertisement. The code will inter-alia provide for necessary restrictions, and restricted activities shall be covered within the ambit of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003;
- Further the proposed Consultation paper will clarify various issues like difference between the activities of Investment Adviser and Research Analyst and bring out more lucidity regarding investment products, fees etc.
Recently Income Tax Act, 1961 has been amended by inserting Section 9A which provides that an eligible fund manager located in India carrying on any fund management activity on behalf of the Overseas Eligible Investment Fund shall not constitute business connection of such fund in India.
That for availing exemption from abovesaid business connection, there are certain conditions to be fulfilled by the Overseas Fund and India based Fund Manager, these conditions include the requirement of registration of India based fund manager with SEBI as a portfolio manager or investment adviser. Therefore, SEBI has now proposed following changes in SEBI (Portfolio Managers) Regulations, 1993:
- Insertion of separate chapter II-A for Eligible Fund Managers acting as portfolio managers to Eligible Investment Fund, and providing their responsibilities and obligations, including segregation of funds and securities;
- Procedure for registration of existing portfolio managers as Eligible fund Managers;
- Procedure for registration of overseas fund manager who want to relocate to India or a fresh foreign applicant to function as eligible Fund Manager;
- Disclosures/information required to be furnished to Eligible Overseas fund as well as to SEBI;
Further, certain exemptions have also been proposed which shall not be applicable to Eligible fund Managers like exemption from sending of Disclosure document, Minimum investment limits, qualifications of Principal Officer and termination conditions etc.
Considering several representations SEBI has proposed to increase the employee reservation in Issues form 2 lacs to 5 lacs, subject to following conditions:
- Application in excess of Rs. 2 lacs shall be considered only in the event of under subscription in the employee reservation portion;
- That the undersubscribed portion shall be allotted on proportionate basis to the employees who have applied for shares in excess of Rs. 2 lacs
In view of the instances of Private Equity Funds entering into compensation agreements with promoters, directors of listed investees without prior approval of the shareholders, which can potentially lead to unfair practices. To plug this deviation, Board has proposed to issue a consultation paper for public comments on amendments to SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015. The consultation paper shall provide for:
- Requirement of disclosures to shareholders and their prior approval by way of ordinary for execution of such agreements;
- Disclosure of existing profit sharing agreement to be stock exchange for public dissemination;
Except Brokers and Sub brokers who are granted permanent registration, SEBI had been following two step process of granting registrations to market intermediaries i.e. initial registration for a period of 3/5 years, followed by renewals or grant of permanent registration. However, as a move towards promotion of ‘Ease of Doing Business’ SEBI has now decided to extend the facility of permanent registrations (being already available to brokers and sub-brokers) to 11 more categories of market intermediaries including Merchant Bankers, Portfolio Managers, Investment Advisors, Research Analyst etc.
To increase the global competitiveness of Indian Stock Exchanges, SEBI has increased the limits of foreign investment in them. To effectuate this SEBI has made following amendments in Securities Contracts (Regulation) (Stock Exchange And Clearing Corporation) Regulations, 2012 (“SECC Regulations”):
- Regulation 17(3) amended to increase the limit of shareholding of foreign institutional investors in Indian Stock Exchanges from 5% to 15%;
- Regulation 17(4) amended to allow Foreign Portfolio investors to acquire the shares of the Unlisted Stock Exchanges through initial allotment.
To promulgate the financial literacy and investor protection, especially in the North Eastern Region of the Nation, the Board has approved opening of new offices at following places:
- Agartala (this office will cover the states of Manipur, Mizoram and Tripura); and
- Vijayawada, capital of newly created state of Andhra Pradesh.