KYC requirements for FPIs

To resolve the complexities arising out of the SEBI’s Circular dated 10.04.2018 w.r.to KYC requirements and eligibility conditions for FPIs and in light of the recommendations made by the Khan Working Group, the Board has decided to issue a revised circular soon.

Review of Total Expense Ratio (TER) of Mutual Fund Schemes

Based on the recommendations made by the Mutual Fund Advisory Committee, with the intent to revise the slab wise limits of TER, the Board approved the following proposals:

• Increased transparency in expenses: All commission and expenses be paid from the scheme only and not from the AMC/Associate/Sponsor/Trustee, or any other route. Further, full trail model of commission in all schemes without payment of any upfront commission or upfronting of any trail commission to be adopted.
• Revised Benchmarks: Benchmarks for TER for Open ended schemes, Close ended and Interval Schemes, Index schemes, Exchange Traded Funds (ETFs) and Fund of Funds (FoFs) have been revised.
• The additional expense permitted for penetration in B-30 cities, shall be based on inflows from retail investors.
• Performance Disclosure: Disclosure of all schemes’ returns (category wise) vis-à-vis its benchmark for TER shall be made available on the website of AMFI.

Reduction in payment of regulatory fee by stock exchanges on turnover from agricultural commodity derivatives segment

In order to pass the benefits of agricultural commodity derivative on to the farmers and Farmers Producer Organization, the Board approved:

• Levy of a nominal regulatory fee at a flat rate of INR 1, 00,000 per exchange on turnover arising from agricultural commodity derivatives instead of levying regulatory fee at the prescribed turn-over based slab rates.
• Exchanges shall create a separate fund earmarked for the benefit of farmers/FPOs in which the regulatory fee forgone by SEBI shall be deposited and utilized exclusively for the benefit of and easy participation by Farmers and FPOs in the agri-derivatives market.

Draft framework for participation of Eligible Foreign Entities (EFEs), having actual exposure to Indian commodity markets, in the commodity derivatives market

• Board has approved the regulatory framework for permitting foreign entities having actual exposure to Indian commodity markets, to participate in the domestic commodity derivatives markets- Eligible Foreign Entities (EFEs).
• EFEs should have actual exposure to Indian physical commodity markets.
• Minimum net worth requirement for EFEs is US$ 500,000
• EFEs allowed to trade in all commodity derivatives ‘Sensitive Commodity’ as defined in SEBI circular dated 25.07.2017
• The tenor of the hedge should not be greater than the tenor of underlying exposure.

Interoperability among Clearing Corporations – Amendments to Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012

Based on the recommendations of the Secondary Market Advisory Committee, the Board approved:

• Amendments to SECC Regulations, 2012 to enable interoperability among clearing corporations (CCPs)
• Adoption of Peer-to-peer model of interoperability to ensure that all CCPs are on an equal footing
• All the products available for trading (except commodity derivatives) would be made available.

SEBI will carry out necessary amendments to the SECC Regulations, 2012 and issue necessary circular/guidelines in this regard.

Proposed Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018

On the basis of public comments and findings of the report submitted by the High Level Committee led by Justice A. R. Dave (retd.), SEBI has approved the framing of the Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018, under which:

• Board may not settle any proceeding if it is of the opinion that the alleged default has market wide impact, loss to investors or affects the integrity of the market. 
• Board may not settle any proceeding where the applicant is a willful defaulter, a fugitive economic offender etc.
• The Board shall not consider an application for settlement, if an earlier application for the same alleged default has been rejected, or if the audit or investigation or inspection or inquiry is not complete (except in case of applications for confidentiality) or if recovery proceedings have been initiated.
• Compounding applications shall be processed along the lines of settlement applications.
• New provision dealing with “settlement with confidentiality” to be introduced.
• The Board may provide for issuance of a notice of settlement prior to issuance of a show cause notice for other defaults

The Committee also suggested that the Central Government may be requested to amend the Income Tax Act, 1961, for removing the deduction as a business expense available for monies paid in pursuance of a composition or a settlement under the securities laws.

Amendments to SEBI (PFUTP) Regulations and SEBI (PIT) Regulations to implement recommendations of the Committee on Fair Market Conduct

Based on recommendations of Committee on Fair Market Conduct and public comments, the Board approved amendments to PFUTP Regulations and Insider Trading Regulations.
Amendments to PFUTP Regulations include:

• Expanding the scope of the regulations to include employees and agents of intermediaries
• Strengthening of the deeming provisions for fraud to include activities such as misleading information on digital media, front running by non-intermediaries etc.
• Issue of mule accounts to be discussed further with stakeholders.

Amendments to PIT Regulations include:

• Sharing of UPSI for due diligence or legitimate purposes, creation of database of persons with whom UPSI is shared, additional defences when trading in possession of UPSI etc.
• Employees/ CEO of associate companies may be excluded from the applicability of the code of conduct.
• W.r.to SEBI seeking the direct power to intercept calls and electronic communication, it was decided that the matter may be referred to the Government to take an appropriate view.

Common Application Form for Foreign Portfolio Investors (FPIs)

SEBI has finalized a common application form for obtaining FPI Registration with SEBI, Permanent Account Number (PAN) and KYC for opening of bank and demat accounts by FPIs.
Necessary amendments to SEBI (Foreign Portfolio Investors) Regulations, 2014 will be made.

Restrictions on Fugitive Economic Offenders

Board was informed of the restrictions imposed by SEBI on Fugitive economic offenders (FEOs) in the SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2018 and SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 2011 w.r.to

• Raising capital through various modes
• Restrictions on listing on ITPs and issue of bonus shares if any of the promoter or director of the issuer is a fugitive economic offender
• Prohibition from making an open offer, counter offer or acquiring any shares or voting rights or control in a target company