Archive for category: UPDATES

Team Corplaw | corplaw@vinodkothari.com 

In terms of the scope and extent of amendments, the SEBI Board meeting of 30th Sept is certainly quite momentous. Major steps in ease of doing business were taken at the meeting, based on the proposals contained in various Consultation Papers floated by SEBI from time to time. The approvals bring about important changes to almost all major regulations of SEBI. While the fine text of the amendments are awaited, we present our brief understanding on the various approved amendments. 

• Review of regulatory framework for Investment Advisors (IAs) and Research Analysts 
  • Relaxation in eligibility requirements for registration as an IA/ RA
    • Results in expanding the regulatory ambit 
    • With a view to bring more stock analysts, investment consultants and so-called finfluencers into the ambit 
    • Relaxing the entry point requirement may potentially motivate lot of capital market consultants to register and come within the regulatory framework
  • Clarity on activities of IA/ RA 
  • Permits registration as part-time RA, dual registration as IA and RA permitted
    • Blurs the line of distinction between IA and RA
  • See detailed discussion under Research Analysts v/s Investment Advisors – Is the Line Blurring ?
• Faster rights issue with flexibility of selective allotment 
  • Requirement of filing draft letter of offer to SEBI removed
    • Timeline expected to drop to 23 days from the existing 300+ days 
    • See Speedy rights issue in 23 working days from BM
  • Promoters may renounce in favour of specific investors 
  • Undersubscribed portion can be allotted to specific investors
    • Requisite disclosures to be made through advertisement in this regard 
  • Monitoring agency mandatory for monitoring of issue proceeds 
• Relaxed requirements under LODR and ICDR 
  • Certain disclosure requirements under Reg 30 of LODR linked with materiality/ absolute limits
    • Absolute thresholds brought for the purpose of fines/ penalties under Para A(20) 
    • Clarification that tax litigation is to be tested for materiality under Para B(8) before disclosure 
  • Relaxed timelines for making disclosures in some cases
    • 3 hours instead of 30 minutes, for board meeting conclusion post trading hours closure 
    • 72 hours instead of 24 hours for disclosure of material litigations or disputes against the listed entity 
  • Integration of stock exchange filings and disclosures
    • Single filing system for automatic dissemination to other stock exchanges 
    • System driven disclosures for shareholding pattern and credit ratings revision 
    • Periodic filings integrated into two broad categories: Governance and Filing 
  • See Making life easy for listed entities: SEBI proposes action on Expert Committee recommendations
  • Amendments under ICDR include harmonization of various provisions of with requirements under LODR, relaxation in documentation requirements etc
  • Issuers with outstanding SARs have been permitted to file DRHP, subject to some conditions
    • Under the existing regulatory framework, only outstanding ESOPs are permitted to continue
• Enhanced scope of “Connected Persons” and “immediate relatives” under PIT Regulations
  • Inclusion of two additional relationships in list of deemed connected persons 
  • ‘Relative’ of  CP to be considered as deemed CP
    • Instead of immediate relative 
    • Proposed definition of relative approved
      • CP proposed wider definition of relative as per Income Tax Act omitted
  • No additional compliances on listed entity, does not impact monitoring of trades for Designated Persons
  • See SEBI proposes to widen the definition of ‘Connected Persons’ 
• Amendment in NCS and LODR for debt-listed entities
  • Relaxation on limits of ISINs, enhanced compliance requirements in some cases
  • Disclosure of DT Agreement in offer document
  • See LODR norms of equity extended to debt listed entities; Disclosure of DT Agreement
• Expanding the scope of Sustainable Finance Framework in Indian Securities Market 
  • NCS Regulations to apply to issuance of ESG Debt Securities (see Consultation Paper)
    • Includes green bonds, social bonds, sustainability bonds and sustainability-linked bonds (see an article here) 
    • Existing regulations cover only green debt securities (see here)
• Buy-back Regulations aligned with Companies Act and market practice (see Consultation Paper)
  • Computation of entitlement ratio to exclude promoters’ shares if they opt out
    • Results in an increased entitlement ratio 
    • Regulations aligned with market practice 
  • Cover page of offer letter to include entitlement ratio
    • along with the link to RTA’s website to check entitlement 
  • Shares issued pursuant to exercise of ESOPs or conversion of convertible instruments permitted during Buyback Period
    • Aligned with Sec 68 of Companies Act read with Rule 17(10)(b) of SCD Rules
    • Details of outstanding ESOPs and convertible instruments to be disclosed in public announcement.
• Amendments pertaining to Mutual Funds (MF) market 
  • Introduction of new investment product as a hybrid between MFs and PMS (see Consultation Paper), to be called as ‘investment strategies’
    • Intended to bridge the gap between MF and PMS to build a flexible portfolio 
    • Aims to curb the proliferation of unregistered/ unauthorised investment schemes which exploits the investors
    • Provides investors with professionally managed and regulated investment product:
      • With greater flexibility, higher risk taking capabilities, adequate risk safeguards such as no leverage, no investment in unlisted/ unrated instruments, limited derivative exposure (25% of AUM) for purposes other than hedging
    • Min investment: Rs. 10 lakhs per investor
  • Liberalised MF Lite Framework for passively managed schemes (See Consultation Paper)
    • in view of the negligible discretion involved in passive MF schemes due to rule based fund
    • Relaxed eligibility criteria for sponsors and trustee’s responsibilities 
    • Option with existing AMCs to hive-off passive schemes to another entity under same sponsor or continue under existing AMC
• Clarification w.r.t. rights of investors in an Alternative Investment Fund (AIF) (see Consultation Paper)
  • Drawdown of funds from investors and distribution of returns on investment – pro-rata to the investors’ commitments.
  • Pari-passu rights in all other aspects (unless specifically exempt)
    • Exemption to Large Value Funds, subject to waiver provided by each investor 
    • Special/ differential rights may be granted to certain investors without impacting the rights of other investors, as per terms formulated by Standard Setting Forum for AIFs in consultation with SEBI
  • Govt-owned entities, Development Financial Institutions, other entities specified by SEBI etc may subscribe to junior classes of units of AIF (less than their pro rata rights) 
  • Existing AIFs with priority distribution (‘PD’) model (i.e. prioritize certain investors for returns) cannot accept new investments or make new investments in other companies.
    • Over concerns of using regulatory arbitrage for evergreening of loans 
    • RBI had also raised concerns around ever-greening and imposed certain prohibition w.r.t. investment in AIFs (see an article along with an update thereof)
      • SEBI Circular dated November 23, 2022, restricted AIFs with PD model from accepting fresh investments or making new commitments until SEBI had taken a view or whether to be allowed or not. 
      • Hence, vide this amendment, AIFs with PD models are disallowed.
• Amendment in relation to FPIs for strengthening Beneficial Owner disclosure (see Consultation Paper)
• Disclosure requirement as per SEBI Circular dated August 24, 2023 [August Circular], extended to Offshore Derivative Instruments (‘ODI’) subscribers and FPIs with segregated structures like, sub-fund structures, separate class of shares, etc.
  • Currently August Circular is not applicable directly to ODI subscribers
  • For FPIs with segregated portfolios, the trigger requirements of the August Circular were applicable on a consolidated basis, now it is proposed to apply on a segregated basis.
  • See Single Corporate Group focused FPIs & Large value FPIs to disclose granular details of beneficial ownership
  • Consequences of Non-compliance –
    • Redemption of ODI or liquidation of segregated portfolios within 180 days
    • Ineligible to invest or hold ODIs issued by other FPIs
• Investor friendly and uniform norms in the Indian securities market (see Consultation Paper)
  • Nomination rights of investors with respect to own holdings
    • Maximum no. of nominees increased from 3 to 10;
    • Nominees to act on behalf of incapacitated investors
    • Simplifying transmission process to nominees, joint holders;
    • Requirement for unique identifiers for nominees i.e. Aadhar, PAN card;
  • Introduction of consistent nomination norms
    • Nominees to act as trustees for legal heirs
    • The rule of survivorship will apply in cases of joint holdings;
    • No rights for legal heirs of deceased nominees;
    • Precedence of creditors claims over transmitted assets 
    • Nomination to be optional for joint demat account and MF folios 
    • Guidelines for providing, changing, and ensuring the integrity, authenticity, and verifiability of nominations
    • No limit on changing the number of nominee investors 
    • Option to specify guardian for minors