The board of the capital markets regulator Securities and Exchange Board of India (SEBI), which met on Monday, approved a slew of changes in rules governing primary and secondary markets along with mutual funds and FPIs but kept mum on any matter related to disclosures & conflict of interest related to chairperson Madhabi Puri Buch.
There was also no announcement related to the derivatives segment, which was keenly awaited by the markets.
This assumes significance as this was the first board meeting of the capital markets watchdog after Buch came under attack with Hindenburg making serious allegations against the chairperson on August 10. Subsequently, Congress spokesperson Pawan Khera levelled a series of charges against her.
Among other things, Khera alleged that Buch received income from ICICI Bank during her tenure as capital markets regulator chief, raising fresh scrutiny about potential conflict of interest.
Meanwhile, the SEBI board was also mum on any decisions related to the F&O segment even as it was highly expected that the board would take a final call on strengthening the index derivatives framework.
Once rolled out, this new framework is expected to have a significant impact on the securities market, putting an end to the gambling-like trading behaviour that had taken off with daily expiries of index-derivative contracts.
On July 30, SEBI floated a consultation paper that proposed a framework under which there would only be weekly expiries of these derivatives contracts (one index-based weekly contract per stock exchange), the minimum contract value would be increased to Rs 15-20 lakh at launch and then later to Rs 20-30 lakh (to deter retail investors), strike prices would be rationalised, and so on.
Since both the finance minister Nirmala Sitharaman and Buch have commented on the urgency to act on the trading behaviour in the F&O or futures and options segment and since the submission deadline for public comments was more than a month ago—on August 20—it was highly expected that the SEBI board would deliberate on the framework in the meeting and arrive at a decision.
Meanwhile, in a 23-pages release issued late on Monday, the board of the capital markets regulator said that it has approved an ASBA-like mechanism for the secondary market, enhanced the scope of T+0 settlement cycle, eased the compliance requirements for Investment Advisors/Research Analysts, enabled faster rights issue process with flexibility of allotment to specific investors, and gave the final go-ahead for the 'New Asset Class' among other things.
The market regulator has mandated that qualified stock brokers, which include some of the biggest broking firms in terms of trading volume and client funds, either provide UPI-block mechanism, or ASBA like facility for secondary market, or the three-in-one trading account facility from February 1, 2025.
A three-in-one trading account is a combination account that has a savings account, demat account and trading account. The regulator said that clients can either choose these options or continue with the existing facility of trading by transferring funds to Trading Members (TMs).
The UPI block mechanism refers to a system wherein investors can trade in the secondary markets by blocking funds in their bank account instead of transferring them upfront to their broking firm. The money would be debited from the bank account only when the shares are credited in the demat account of the investor.
The regulator has also enhanced the scope of optional T+0 settlement cycle by deciding that the number of stocks eligible for trading under optional T+0 settlement will be increased in a phased manner from the current 25 to top 500 in terms of market capitalisation.
"All registered Stock Brokers can offer access to the optional T+0 settlement cycle to their investors. Stock Brokers are free to charge differential brokerage for the same," stated the SEBI release.
The board of the capital market regulator, which met on Monday, also gave the final go-ahead for the new product with the minimum ticket size pegged at Rs 10 lakh per investor across all investment strategies of the new product in a particular AMC.
"Offerings under the new product will be referred to as ‘Investment Strategies’, to maintain clear distinction from the schemes offered under the traditional Mutual Funds. The minimum investment limit for the new product will be INR 10 lakh per investor across all investment strategies of the new product in a particular AMC. The new product is intended to add depth and variety to the investment landscape of the country through a new asset class," stated a release issued by SEBI on Monday.
The market regulator has also eased the norms for faster rights issue, which is meant to be more appealing than the current market favourite -- preferential allotment route. This new route can be completed in 23 days from the issuer's board meeting approving the rights issue, versus the present timeline of 317 days, and faster than the 40 working days needed for completion of preferential allotment.
The board also cleared the much awaited liberalised Mutual Funds Lite (MF Lite) framework for passively managed schemes of mutual funds. As per the SEBI release, under the MF Lite framework there would be a series of relaxed regulatory requirements designed to facilitate easier entry into the mutual fund market. The first being eligibility criteria for sponsors.
Under the framework, the barriers related to net worth, track record, and profitability would be lowered, allowing more entities to enter the mutual fund space.
Secondly, simplified responsibilities for trustees are expected to ease compliance burdens and encourage new market participants. Third, in regards to approval process and disclosures, the amendments would allow for streamlining the approval process and reducing the disclosure obligations for passive schemes, making it less cumbersome for asset management companies (AMCs) to operate in this segment.
SEBI also announced changes to regulations governing ODI (Offshore Derivative Instruments) disclosures.
The regulator said that a monitoring and compliance mechanism will be established to ensure that ODI-issuing Foreign Portfolio Investors (FPIs) submit relevant information about ODI subscribers to the depositories, as well as segregated portfolio-level information to the Designated Depository Participant (DDP) or Custodian.
Additionally, non-compliance with these disclosure requirements will result in the redemption of ODIs or liquidation of segregated portfolios within 180 days. Defaulting ODI subscribers will be ineligible to subscribe to or hold any positions through ODIs from any ODI-issuing FPI.
On a different note, the market regulator has given more time to report certain material events, has said that disclosures relating to tax litigations and disputes need to be made based on materiality, and has made disclosure of fines or penalties mandatory only if it crosses a threshold as against disclosure of all fines/penalties within 24 hours.
SEBI has announced these ease-of-doing business measures under Listing Regulations (LODR Regulations) and Capital Issue Regulations (ICDR Regulations).
Meanwhile, the market regulator will now accept a recognised degree from a foreign university or institution in finance or law or accountancy or business management for grant of certificate of registration for merchant banker.
Until now, under SEBI (Merchant Bankers) Regulations, 1992, only those with professional qualification from a government-recognised Indian institution could apply for the registration.
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