SEBI Board meeting may discuss SME listing, insider trading rules, specified digital platform

The market regulator is expected to present the new proposals to encourage and protect retail investor interest in the SME listing space

The Securities and Exchange Board of India (SEBI) is to meet with its Board on December 18 to present various highly anticipated proposals to promote investor protection and ease of doing business.

SEBI is likely to bring more transparency and accountability in listing in the SME segment, improve disclosures on unpublished price-sensitive information and bring ease of doing business for registered entities in terms of associating with their vendors and advertising their services.

SME listing
The market regulator is expected to present the new proposals to encourage and protect retail investor interest in the SME listing space. Among the proposals for pre-listing of the company are the increasing of the minimum application size to Rs 2 lakh from the current Rs 1 lakh, introducing a draw-of-lot allotment method for non-institutional investors (NIIs) and increasing the minimum number of allottees to 200 from the current 50.
Many of these are geared towards investor protection and dissuading retail investors who do not have the ability to take bigger risks. For example, draw of lots to decide on allotment for NIIs was proposed because the proportionate allotment, currently done, encouraged use of leverage and caused mispricing.

Also read: SEBI's proposals for algo-trading norms could end illegal PMS arrangements within families

Among the proposals for post listing are extending the applicability of provisions of related-party transactions (RPTs) under Listing Obligations and Disclosure Requirements (LODR) Regulations to SME listed entities (with certain exceptions), mandating disclosures on composition and meetings of board of directors, and mandating quarterly submissions of financials and shareholding patterns.

Insider trading norms
The SEBI Board may also consider review of the definition of unpublished price-sensitive information (UPSI) under Prohibition of Insider Trading (PIT) Regulations, and allow for expanding it. The regulator decided to review this after its study  showed that "companies were seen to be categorizing only the items explicitly mentioned in Regulation 2(1)(n) of PIT Regulations as UPSI thus not complying with the law in spirit". In the meeting, the Board may be asked to consider the alignment of the definition of UPSI with that of material event under Regulation 30 of LODR Regulations. That is, UPSI would include change in ratings; the decision on a proposed fund-raising, agreements that impact the management and control of the company; fraud or default committed by the company, its promoter, its key management personnel, senior management or subsidiary; change in KMP other than due to superannuation or end of term and resignation of statutory auditor or secretarial auditor and insider trading, and others.

The regulator had proposed the recognition of a specified digital platform (SPF) through which registered entities can associate with a third party. Registered entities who associate via this platform have easier compliance norms.

Specified digital platform
In October this year, SEBI had proposed a framework through which a digital platform can hope to be recognised as an SPF. The framework includes various requirements that the platform has to meet, such as the ability to take specific preventive and curative measures, a policy to work in collaboration with SEBI, and a policy on transparency and accountability including a policy to submit periodic reports to the regulator on information on the identification and action taken by the platform related to frauds, impersonation and so on.

In this Board meeting, the regulator could present this framework for consideration too. Any progress on this front will be highly awaited both by brokerages and content creators or finfluencers.

Performance Validation Agency
There is another regulatory measure that is highly awaited, which is the setting up of the performance validation agency (PVA). This was proposed more than a year ago "to validate any claims of performance by SEBI registered intermediaries and other entities, thereby facilitating these intermediaries/ entities to showcase their validated performance to investors to grow the reach of their service." Market insiders say that research analysts (RAs), investment advisors (IAs) and brokerages' algo services are particularly anxious for this agency to start functioning, to aid in the selling of their products.

This agency is expected to be a wholly-owned subsidiary of a market infrastructure institution (MIIs) or be a jointly supported entity by multiple MIIs. In this Board meeting, the regulator is expected to present this proposal too.