SEBI's 204th Board Meeting

SEBI's Governance Frontier: Noteworthy Outcomes of the 204th Board Meeting

Author- Tanvi Thapliyal

Role of SEBI in Indian securities market

• The initiative aims to enhance market efficiency by streamlining the trading process through reducing the settlement cycle from T+2 to T+0. The shorter settlement cycle allows for faster access to funds and securities, which helps to speed up the movement of capital and improve market liquidity.

• T+0 settlement reduces settlement risk by minimising the time between trade execution and settlement, thus reducing the exposure duration. When transactions are settled on the same day, it greatly reduces the chances of counterparty default and the risks that come with it. This helps to build more confidence among market participants.
• The faster settlement process means that investors will have a smoother and more convenient experience. Investors can easily access their funds and securities, which means they don't have to wait and can manage their liquidity more effectively. This also opens up more investment opportunities for them.
• The adoption of T+0 settlement brings India's securities market infrastructure in line with global best practices, ensuring alignment with global standards. With the increasing adoption of real-time settlement mechanisms in markets around the world, this initiative further solidifies India's reputation as a forward-thinking and competitive participant in the global financial landscape.

2. Exempting additional disclosure requirements for Foreign Portfolio Investors (FPIs)

• The decision to exempt certain Foreign Portfolio Investors (FPIs) from additional disclosure requirements is based on specific criteria. This is done to make it easier for them to comply with regulations and to create a favourable environment for foreign investment in India's securities market. The criteria for exemption usually focus on how much FPI holdings there are and how they affect the companies that are listed.
• FPIs who want to be exempt from additional disclosure requirements must have a large portion of their India equity assets under management concentrated within a single corporate group. This criterion recognises that foreign portfolio investors (FPIs) may have an investment strategy that targets specific sectors or companies in the Indian market.
• The exemption criteria may also be applicable to Foreign Portfolio Investors (FPIs) who have significant holdings in listed companies where there is no identified promoter. Companies that have dispersed shareholding patterns or are going through structural changes, like mergers, acquisitions, or divestments, often encounter this situation.
• FPIs seeking exemption must adhere to specific thresholds regarding their composite holdings in the target company. These thresholds are in place to make sure that exempted FPIs have a well-rounded and varied portfolio, reducing the risk of having too much influence or control over listed companies.
• The exemptions given to certain Foreign Portfolio Investors (FPIs) from additional disclosure requirements have multiple purposes. These purposes include making it easier to do business and encouraging investment in India's securities market.
• Regulators help ease the regulatory burden on investors by exempting FPIs that meet certain criteria from additional disclosure requirements. This simplified compliance process allows FPIs to save resources and concentrate on their main investment activities, which improves efficiency and reduces administrative costs.
• The exemptions show that there is a proactive effort to create a favourable investment environment, which helps to build confidence among foreign investors. Regulators show their dedication to creating a business-friendly environment for long-term investment by making regulatory compliance easier for eligible FPIs.
• The exemptions are designed to encourage more participation from foreign portfolio investors (FPIs) in India's securities market. This helps attract more capital into the market and improves liquidity. When regulatory obligations are clear and certain, eligible FPIs are more likely to invest in Indian equities, bonds, and other financial instruments. This helps to increase the depth and breadth of the market.

• These changes include important events or developments that need to be reported to the designated depository participant (DDP) within seven working days of their occurrence.
• Some examples of Type I material changes could be things like major corporate events, changes in ownership, or new regulations that affect the FPI's investment portfolio.
• According to the updated disclosure requirements, Foreign Portfolio Investors (FPIs) need to inform their Designated Depository Participant (DDP) about Type I material changes within the specified timeframe.

• Type II material changes refer to less urgent or routine developments that still need to be disclosed, but can be done over a longer period of time.
• The changes are classified as Type II because they have a lower impact or urgency compared to Type I changes.
• Some examples of Type II material changes could be when there are updates on investment strategies, changes in key personnel, or amendments to operational procedures.
• According to the new disclosure requirements, foreign portfolio investors (FPIs) must now disclose Type II material changes to their designated depository participants (DDP) within 30 days of the change happening. If there are any supporting documents, they should also be included in the disclosure.

• The timeline for disclosing Type I material changes remains the same, which is seven working days. However, the revised requirements now state that if there are any supporting documents, they must be submitted within 30 days from the occurrence.
• Regarding Type II material changes, FPIs are required to disclose the developments, along with any supporting documents, to their DDP within a 30-day window.
• The new streamlined process for disclosing Type II material changes within a specific timeframe allows Foreign Portfolio Investors (FPIs) to provide regulators with detailed information without rushing through it.

• You can now reactivate your FPI registration within 30 days from the date it expires if it was due to non-payment of registration fees. FPIs are given a grace period to quickly rectify any registration lapses.
• During the 30-day reactivation window, foreign portfolio investors (FPIs) are also allowed to sell their securities holdings. This provision allows foreign portfolio investors (FPIs) to effectively manage their investment portfolios, even if their registration expires.

• If there is a negative change in the compliance status of the FPI's home jurisdiction, they are given at least 180 days or until the end of the registration block (whichever is later) to sell their securities. This provision gives foreign portfolio investors (FPIs) enough time to adapt to regulatory changes and adjust their investment strategies accordingly.
• If FPIs fail to submit the required documents for reclassification from category I to category II, they are given a minimum of 180 days or until the end of the registration block (whichever is later) to dispose of their securities. FPIs are allowed to rectify any compliance deficiencies and make adjustments to their investment portfolios as needed.

• There is a financial penalty for not selling securities held by a Foreign Portfolio Investor (FPI) within 180 days. If the securities are still unsold after this time, there is an additional 180-day period given to sell them. However, they impose a financial disincentive of 5% of the sale proceeds, which is then credited to SEBI's Investor Protection and Education Fund (IPEF). This provision encourages people to sell their securities in a timely manner, which helps to protect investors.
• If securities are not sold within the additional 180-day period, the FPI will consider them as compulsorily written-off. This measure is put in place to make sure that securities holdings are managed efficiently and to prevent assets from staying stagnant in FPI portfolios for too long.

• SEBI has recently announced that they are no longer requiring a 1% security deposit for public or rights issues of equity shares.
• This move helps issuers by reducing their financial burden, making the IPO/fundraising process more cost-efficient.

• Now, even promoter group entities and non-individual shareholders who own more than 5% of the post-offer equity share capital can make contributions to the MPC without being classified as promoters themselves.
• This revision aims to include a wider range of contributors to the MPC, which will provide more flexibility for promoters to comply with regulatory requirements.

• Equity shares that come from compulsorily convertible securities and have been held for at least one year before submitting the Draft Red Herring Prospectus (DRHP) will now be taken into account for the MPC requirement.
• This provision acknowledges that the ownership of equity can come from convertible instruments, which helps to make things more transparent and in line with regulatory standards.

• SEBI has made it easier to file for Offer for Sale (OFS) by introducing a single requirement to determine if fresh filings are necessary.
• Any modifications regarding the issue size in rupees or the number of shares, as mentioned in the draft offer document, will require a new filing of OFS.
• This makes administrative procedures easier for market participants by reducing regulatory complexities.

• SEBI decided to reduce the minimum extension for the bid/offer closing date due to force majeure events.
• Previously, it was required to extend the date by three days, but now it will only be necessary to extend it by one day.
• This adjustment gives issuers and market intermediaries more flexibility in dealing with unexpected disruptions, which helps make IPOs and fundraising activities go more smoothly.

• The criteria for determining compliance based on market capitalization for listed companies will now take into account the average market capitalization over a six-month period ending on December 31.
• SEBI now moved away from the previous method of using the market capitalization from a single day (March 31).

• Companies will have a transitional period to adjust to the new compliance framework once the market capitalization-based provisions expire after three years.

• The timeline for filling vacancies of Key Managerial Personnel, which require approval from statutory authorities, will now be extended from 3 to 6 months.
• This extension gives companies additional time to manage the recruitment process and acquire the necessary approvals.

• harmonising and reducing the timelines for prior intimation of board meetings to just two working days.
• By streamlining the communication process, ensuring that  information about upcoming board meetings is shared with stakeholders in a timely manner.

• The gap between two consecutive meetings of the Risk Management Committee has been extended from 180 days to 210 days.
• This extension allows for more flexibility when scheduling committee meetings, while still ensuring that there is enough oversight of risk management functions.  

• This approach involves establishing consistent criteria for verifying rumours, primarily by looking at significant changes in the stock prices of the company in question.
• Companies are required to verify rumours about changes in stock prices within 24 hours of the rumours starting.
• This requirement is in place to make sure that the listed entities respond quickly and take action to address market rumours. This helps to improve transparency and boost investor confidence.
• Promoters, directors, key managerial personnel, and senior management of listed entities have a responsibility to promptly respond to requests for verifying market rumours.
• It's important for key stakeholders to provide accurate information and clear up market speculation in order to maintain market integrity.
• According to SEBI (Prohibition of Insider Trading) Regulations, 2015, events or information that have not been verified and are reported in print or electronic media will not be considered as 'generally available information'.
• The purpose of this provision is to discourage the spread of unverified or speculative information through media channels. Such information has the potential to affect market sentiment and integrity.

SEBI, the Securities and Exchange Board of India, has made it mandatory for Alternative Investment Funds (AIFs), their managers, and key management personnel to carry out specific due diligence on both their investors and investments.
This requirement is in place to make sure that AIFs follow the rules set by regulators. It also helps to make their operations more transparent and accountable.

• The SEBI Board has approved a new measure that allows Alternative Investment Funds (AIFs) to keep their investments intact even during the winding up process. This can be done by entering a Dissolution Period.
• The previous option of launching a new scheme called the Liquidation Scheme has been replaced. This new scheme provides AIFs with a different way to manage investments that have not been liquidated during winding up.
• The Board has agreed to extend the Liquidation Period for AIF schemes by one year in order to handle investments that have not yet been liquidated.
• However, this extension is subject to certain conditions.
  This extension provides additional time and flexibility for AIFs to sell their investments in an organised way, reducing the risk of disruptions and maximising returns for investors.

• The deadline for the mandatory application of listing norms (Regulation 16 to 27 of LODR, 2015) on High-Value Debt Listed Entities has been extended until March 31, 2025.
• This extension allows entities more time to comply with the listing norms, ensuring a smooth transition and adherence to regulatory requirements.
• SEBI has made the decision to recognise Stock Exchanges as the Administration and Supervisory Body for Research Analysts (RAASB) and Investment Advisers (IAASB). This recognition improves the regulatory oversight of stock exchanges and makes their role in supervising research analysts and investment advisers stronger.

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