Introduction: In the 204th Board Meeting of SEBI held on 15th March 2024, several significant amendments were approved to enhance the efficiency and transparency of India’s capital markets. These amendments cover various aspects, including settlement cycles, FPI regulations, IPO requirements, compliance norms for listed entities, rumour verification standards, and access to funding for infrastructure projects and Alternative Investment Funds (AIFs). Each amendment reflects SEBI’s proactive approach to regulatory reform, aiming to foster investor confidence, streamline operations, and drive sustainable growth in the capital market ecosystem.
Capital Market -Approval of Certain amendments in 204th Board Meeting of SEBI held on 15.03.2024
1. Settlement of Trading in T+0 days
Approval of launch of a Beta version of optional T+0 settlement, for a limited set of 25 scrips, and with a limited set of brokers.
The objective of SEBI for launching the BETA version of Optional T+0 Settlement is to evaluate and test the feasibility and effectiveness of a shorter settlement cycle in the Indian securities market. This initiative aims to enhance market efficiency, reduce risks, and provide greater flexibility to market participants in managing their trades and positions.
2. Foreign Portfolio Investors (FPIs)
(a) Approval to exempt additional disclosure requirements for FPIs which is having > than 50% of their India equity Assets under Management (AUM) in a single corporate group, in case the concentrated holdings of the FPIs are in a listed company with no identified promoter if the following conditions are met:
(i) Such FPI holds not more than 50% of its India equity AUM in the corporate group, after excluding its holding in the parent company with no identified promoter.
(ii) The composite holdings of all such FPIs (that hold over the 50% concentration criteria and are not exempted) in the company with no identified promoter, is less than 3% of its total equity share capital
This amendment by SEBI signifies a balanced regulatory approach, wherein certain FPIs are exempted from additional disclosures based on their risk profiles. This strategic move not only streamlines business operations but also boosts investors’ trust, thereby encouraging greater capital influx into India
(b) Approval of a proposal to relax the timelines for disclosure of material changes by FPIs, which are categorized into Type I and Type II disclosures, which currently have to be done within seven working days.
(c) Approval to provide FPIs flexibility in dealing with the securities post-expiry of their registration. Additional time is provided even after 180 days to dispose of its securities.
3. Amendment to SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 for companies coming for IPOs or fundraising like:
(a) Companies shall not be required to keep 1% of the issue size as a security deposit with Stock Exchanges in public/rights issue of equity shares
(b) Promotors group entities and non-individual shareholders holding more than 5% of post-offer equity share capital shall be permitted to contribute as Minimum Promoters Contribution (MPC) without being identified as a promoter.
(c) Equity shares issued upon conversion of compulsorily convertible securities held for a year before filing the draft Red Herring prospectus (DRHP) shall be considered for meeting MPC requirements.
(d) Increase or decrease in size of offer for sale (OFS) requiring fresh filing shall be based on only one of the criteria i.e. either issue size in rupees or number of shares, as disclosed in the draft offer document.
(e) Companies are provided with flexibility in bid/offer closing date on account of force majeure events by a minimum of one day instead of the present requirement of a minimum of three days.
SEBI’s approval of these amendments signifies a proactive and forward-thinking approach to regulatory reform, poised to unlock new opportunities and drive sustainable growth in India’s capital markets.
4. Amendments to SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 in respect of the following:
(a) Market capitalization-based compliance requirements for listed entities to be determined based on the average market capitalization of six months ending December 31, instead of one single day as of March 31. A sunset clause of three years for cessation of applicability of market capitalization-based provisions is also being introduced.
(b) For filling up vacancies of Key Managerial Personnel timeline is extended from 3 months to 6 months which requires approval of statutory authorities.
(c) Timeline of prior intimation of board meetings is harmonized to 2 working days as at a few places, it was 5 days or 11 days or days or working days.
(d) Increasing the maximum permitted time gap between two consecutive meetings of the Risk Management Committee from 180 days to 210 days to provide flexibility to listed entities to schedule the meetings.
This move of SEBI to liberalize certain ongoing compliances for listed entities reflects a practical approach aimed at harmonizing certain provisions and facilitating ease of doing business. By adopting a pragmatic stance, SEBI seeks to promote efficiency and operational flexibility, ultimately fostering a more conducive environment for businesses operating in India’s capital markets.
5. Uniform approach for Rumour Verification Requirement
SEBI has approved a uniform standard approach as follows as presented to it by the Industry Standards Forum (ISF), to effectively implement compliance and facilitate the verification of market rumours by equity-listed entities.
(a) Specifying objective and uniformly assessed criteria for rumour verification in terms of material price movement of equity shares of the listed entity.
(b) Considering the unaffected price for transactions wherever pricing norms have been prescribed under SEBI Regulations provided that the rumour pertaining to such transaction has been confirmed within 24 hours from the trigger of material price movement.
(c) Promoters, directors, key managerial personnel and senior management to provide timely response to the listed entity for verifying market rumour.
(d) Unverified event or information reported in print or electronic media not to be considered as generally available information under SEBI ( Prohibition of Insider Trading) Regulations, 2015
This standardized framework ensures consistency and clarity in regulatory practices, enhancing market transparency and investor confidence.
6. Access to funding for Infrastructure Sector & Alternative Investment Funds (AIFs)
Approve allowing Category I and II AIFs to create an encumbrance on the equity of its investee companies in the infrastructure sector to facilitate the raising of debt/loan by such investee companies, subject to certain conditions, including compliance with RBI regulations. The reason for such a move is to support infrastructure financing.
Explanation: For this purpose, the companies in the infrastructure sector are such companies that are engaged in the business of development, operation or management of projects in any of the infrastructure sub-sectors listed in the Harmonised Master List of Infrastructure sub-sectors, as issued by the Government of India.
By enabling AIFs to utilize their equity holdings as collateral, it promotes liquidity and access to funding for vital infrastructure projects, thereby contributing to India’s economic development and growth.
7. Enhancing trust in the AIF Eco System
Approval of the proposal to require AIFs, Managers of AIFs and their KMPs to carry out specific due diligence of their investors and investments, so that AIFs do not facilitate circumvention of specified regulations administered by financial sector regulators.
To ensure that the due diligence requirements are not open-ended or subject to interpretation, the specific implementation standards for verifiable due diligence to be conducted on investors and investments of AIFs shall be formulated by the pilot Industry Standards Forum for AIFs, in consultation with SEBI.
With these due diligence practices, regulatory integrity is upheld, and potential risks associated with regulatory non-compliance are mitigated within the financial ecosystem.
8. Extension of time to High-Value Debt Listed Entities
The timeline for mandatory applicability of Listing Norms (i.e. Regulation 16 to 27 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 for High-Value Debt Listed Entities (HVDLEs) is further extended till March 31, 2025.
This extended timeline allows HVDLEs sufficient transition to adapt to the new regulatory requirements without compromising operational efficiency or market stability.
9. AIF – Launching a New Scheme or Dissolution Period for unliquidated investments
(a) Approval to AIFs to deal with unliquidated investments that are not sold due to lack of liquidity during the winding-up process, by continuing to hold such investments in the same scheme of the AIF and entering into a Dissolution Period.
(b) The said facility of entering into the Dissolution Period has been introduced in place of the existing option of launching a new scheme (viz. Liquidation Scheme).
(c) The value of such investments carried forward into the Dissolution Period shall be recognized as per norms specified by SEBI for capturing in the track record of the manager and for reporting to Performance Benchmarking Agencies.
(d) The Board also approved the proposal to provide a one-year additional Liquidation Period to schemes of AIFs to deal with unliquidated investments whose Liquidation Period had expired in the past or shall expire within 3 months from the date of notification to AIF Regulations.
This move of SEBI must be to streamline the winding-up process and enhance the orderly exit of investors from AIFs.
10. Issue of subordinate units by a privately placed InvIT
(a) Approval of amendments to SEBI (Infrastructure Investment Trusts) Regulations, 2014 to provide a framework for issuance of subordinate units by privately placed InvITs only to start with.
(b) The objective of the framework for the issuance of subordinate units is to enable the usage of subordinate units to bridge the valuation gaps that may arise as a result of differences in the valuation of an asset assessed by the Sponsor (in its capacity of the asset seller) and the InvIT (in the capacity of the asset buyer).
(c) The framework is designed to also include risk mitigation measures in respect of such units.
11. Stock Exchanges are recognized as a body for the administration and supervision of Research Analysts and Investment Advisers
(a) The Board approved the proposal to recognize a stock exchange as a “Research Analyst Administration and Supervisory Body” (RAASB) and “Investment Advisers Administration and Supervisory Body” (IAASB).
(b) As in the case of Investment Advisors, the RAASB framework will be fee-neutral to the Research Analysts.
(c) Further, to provide ease of doing business and to ensure smooth operationalization of the RAASB/IAASB framework and prevent disruption, the Board approved deemed enlistment of existing registered RAs/IAs.
Conclusion: The decisions taken in the 204th Board Meeting of SEBI represent a pivotal step towards strengthening India’s capital markets and aligning regulatory frameworks with evolving market dynamics. By introducing amendments to settlement cycles, FPI regulations, IPO norms, compliance requirements, rumour verification standards, and facilitating access to funding for infrastructure projects and AIFs, SEBI aims to promote transparency, efficiency, and investor trust. These regulatory reforms are poised to unlock new opportunities, enhance market integrity, and drive long-term growth in India’s financial ecosystem.
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