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Jun 22, 2018

SEBI Board Meeting decisions dated 21st June, 2018

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Board in its meeting held on 21st June, 2018 decided to overhaul majorly all significant SEBI Regulations with an aim to simplify the language by eliminating redundant provisions and inconsistencies, by updating the references to the Companies Act, 2013 and by resolving the practical issues faced while implementing the provisions laid down therein, making it more easy readable and understandable for the issuers as well as for the investors. A new set of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 will be notified simplifying the norms for Initial Public Offerings and Rights Issues, also, a new set of SEBI (Buy-back of Securities) Regulations, 2018 will be notified which would be in line of the Companies Act, 2013. Major amendments will be notified in SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and other miscellaneous Regulations which presently have various inconsistencies.

Subject/ Regulations

Amendments

Review of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011

Board issued a discussion paper on 28th March, 2018 soliciting public comments for reviewing SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 which mainly aimed to simplify the language, eliminating redundant provisions and inconsistencies, updating the references to the Companies Act, 2013 / other new SEBI Regulations, and incorporating the relevant circulars, FAQs, informal guidance in the Regulations.

In reference to the same, Board has decided to grant additional time for upward revision of open offer price till one working day before the commencement of the tendering period.

In addition, following were the other proposals which formed part of discussion paper and might have been approved by the Board in the amended Regulations:

Provisions

Existing Provision

Proposed changes

Impact if amended in Regulations

Exemption for acquisition of shares or voting rights or control in inter-se transfer amongst group companies

Inter-se transfer of shares or voting rights or control amongst the Target Company or, its subsidiaries, its holding, other subsidiaries of such holding company, or any other entity where such persons holds atleast 50% of the equity shares is presently exempted under the Regulations. However, as per the Regulations, company means a company incorporated under the provisions of this Act or any other previous company law and does not specifically covers any other form of entity which is in the group whether Indian or Foreign. For such group entities, a separate application to seek exemption has to be made with Board.

Explanation to the exemption has been inserted specifying to include a body corporate, whether Indian or foreign in the definition of company for this specific exemption.

With the insertion of explanation including a body corporate whether Indian or foreign, any group entity would also get an automatic exemption on transfer of shares or voting rights or control over the Target Company.

Calculation of trading status

The trading status of shares of the Target Company shall be calculated on the date on which open offer is made.

The trading status of shares of the Target Company shall be calculated on the date on which open offer is required to be made

In all cases of delayed open offer, calculation of trading status would be done on the date open offer was required to be made.

Interest bearing Escrow account

Presently, Acquirer loses interest on the funds submitted in Escrow account during the open offer period.

Proposed that escrow account may be maintained on interest bearing basis.

This step would lower the actual cost for the Acquirers, as they would not lose significant interest portion on the funds submitted.

Despatch of Letter of offer through electronic mode

Presently, there is no route to despatch the letter of offer through electronic mode

Proposed to allow despatch of letter of offer through electronic mode in parlance with the provisions of Companies Act, 2013.

This would in consistency of Companies Act, 2013. This would reduce the cost and would ensure timely delivery of the Letter of offer.

Timeframe to make disclosure on disposal of shareholding beyond 2% of the voting rights.

No timeframe was specifically provided to file disclosure in case of disposal of shares within 2 working days for the change beyond 2% of the voting rights.

Proposed to insert the timeframe of 2 working days in cases of disposal of shares as well along with acquisition or allotment of shares.

This would clarify the ambiguity in the legal position.

The Board may include the above mentioned amendments in the regulations, which are yet to be notified.

Review of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009

Board decided to come out with new SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, wherein the contents of Regulation would be streamlined in a simplified manner with eliminating the inconsistencies in the present Regulations, making it more easy readable and understandable.

The Board while approving ICDR Regulations have considered and approved proposals of Primary Market Advisory Committee, the key proposals approved are as follows:

  • Reduced the requirement to announce price band to 2 working days from 5 working days before opening of the issue;
  • Reduced the period for disclosure of financial information in case public issues and rights issues to 3 years instead of 5 years, that too on consolidated basis as earlier required to be made on both standalone as well as consolidated basis, incorporating the principles governing disclosures of Indian Accounting Standards (IndAS) on Indian GAAP (IGAAP) Financials;
  • In case public issues and rights issues, an additional requirement to disclose audited standalone financials of the issuer and material subsidiaries on the website of the issuer has been inserted;
  • The threshold limit to submit draft letter of offer with the Board in cases of rights issues has been increased from INR 50 lacs to INR 10 crores;
  • Allowed institutional investors such as foreign venture capital investors, scheduled commercial banks, public financial institutions, insurance companies and Alternative Investment Funds to subscribe the shortfall of upto 10% in minimum promoters’ contribution, without being identified as Promoters of the issuer;
  • Disallowed the companies having audit qualifications or adverse opinion to be eligible for fast track right issues;
  • Deleted chapter on Institutional Placement Programme and provisions relating to Safety net and IPO grading;
  • In case of SME-IPO, the minimum anchor investor size has been reduced from INR 10 Crores to INR 2 Crores;
  • Amended the definition of Promoter Group, wherein in case promoter is a body corporate, the shareholding threshold for identifying promoter group has been revised to 20 percent as the earlier was of 10 percent. Also, while identifying whether a group of individuals or companies or combinations thereof, which holds 20 percent or more of the equity share capital in any body corporate and also holds 20 percent or more of the issuer can be classified as promoter group only if they are acting in concert;
  • Inserted the definition of Group Companies which shall include such companies (other than promoter(s) and subsidiary (ies)) with which there were related party transactions during the period for which financial information is disclosed in last 3 years, as covered under the applicable accounting standards and also other companies as considered material by the board of the issuer;
  • Permitted Insurance Companies and Foreign Portfolio Investors except for Category – III promoted by entities related to the lead manager to participate in the Anchor Investor category, in addition to mutual funds which was already allowed;
  • The requirement to underwrite 100% of the issue size in case of Initial Public Offer has been reduced to 90%, as for an IPO to be successful minimum subscription shall be of 90% only.

The new set of regulations are yet to be notified.

Replacing SEBI (Buy-back of Securities) Regulations, 1998 with new SEBI (Buy-back of Securities) Regulations, 2018

Board issued a discussion paper on 28th March, 2018 soliciting public comments for reviewing SEBI (Buy-back of Securities) Regulations, 1998 which mainly aimed to simplify the language, eliminating redundant provisions and inconsistencies, updating the references to the Companies Act, 2013 / other new SEBI Regulations, and incorporating the relevant circulars, FAQs, informal guidance in the Regulations.

In reference to the same, Board has decided to define the buy back period which will commence from the date between Board of Directors resolution or the date of result for special resolution authorizing the buy back of shares and the date on which payment consideration is made to the shareholders.

The new set of regulations are yet to be notified.

Decision on review of regulation and relevant circulars pertaining to Stock  Exchanges, Clearing Corporations and Depositories (‘Market Infrastructure
Institutions’)

In order to bring parity and harmonize the provisions of regulation and relevant circulars governing Market Infrastructure Institution (‘MIIs’) i.e. Stock Exchanges, Clearing Corporations and Depositories, the Board has approved proposals as recommended by the Gandhi Committee constituted by the Board to ‘Review of regulation and relevant circulars pertaining to MIIs’. The Board has approved proposed Following proposed amendments have been approved:

  • Eligible domestic and foreign entities allowed to hold upto 15% equity in Depository and Clearing cooperation and shareholding of these MII will be likewise to Stock Exchanges;
  • Changes have been approved in the provisions related to Public Interest Directors in all MIIs including restricting their tenure across MII to be not more than 3 terms of 3 years each;
  • Composition of Governing Board and Regulatory committees of all MIIs have been modified;
  • Changes proposed to bring transparency in the utilization of resources by all MIIs;
  • Requirement of Regulatory approval given away for activities in the nature of treasury investment, if as per investment policy approved by the Governing Board. For other deployment of funds, approvals of Regulator would be needed;
  • The definition and disclosure requirements with respect to KMP of MIIs modified;
  • Various committees of MIIs have been restructured, reducing the number of committee from existing 15 to 7;
  • Methodology for Computation of Networth of a Clearing Corporation modified.

Role of Sub-broker vis-a-vis Authorized Person

Board has now decided to discontinue the category of sub-broker as Market Intermediaries and for this no fresh registration shall now be granted. The already registered sub-brokers will have to choose to migrate either to Authorized Persons or Trading Members and in case migration is not made within the time, as may be specified, it shall be deemed that the registration has been surrendered.

Consultation Paper for the Amendment of various SEBI Regulations in respect of entities undertaking Third Party Assignment under securities laws

Presently, fiduciaries like Merchant Bankers, Credit Rating Agencies, Custodian, Debenture Trustees, Registrar to an Issue, etc. are registered with Board under respective regulations, but certain other fiduciaries such as Practicing Chartered Accountants, Practicing Company Secretaries, Cost Accountants, Valuers, Monitoring Agencies, etc. who undertake third party fiduciary duty/assignment/engagement from Issuers or Intermediaries as required under various SEBI Regulations, are not registered with SEBI.
Board in order to maintain investor confidence and to ensure reliable reporting of disclosure, financial information, and compliance with securities regulations, would issue a Consultation Paper to amend various regulations in respect of entities who undertake third party fiduciary duty/assignment/engagement under the securities laws, in respect of any Issuer, Pooled Investment Vehicle, Intermediaries and Market Infrastructure Entities.   

Establishment of National Centre for Financial Education (NCFE) as Section 8 Company – subscription to its Share Capital

Board has approved the establishment of National Centre for Financial Education (‘NCFE’) under Section 8 of the Companies Act, 2013 and approved subscription of 30% of the paid-up capital of the company amounting to INR 30 crores.


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