The proposals are likely to be discussed by Sebi's board at its meeting this week.
In a series of reforms, capital markets regulator Sebi is planning to expand its Offer For Sale framework to more companies, relax its norms for clubbing of investment limits by established foreign investors and tighten insider trading rules.
The regulator is also planning to relax its disclosure norms for housing finance companies and systemically important NBFCs regarding pledged shares of listed firms and also provide for cancellation of an Offer For Sale (OFS) in case of limited interest from non-retail shareholders on the first day itself, officials said.
These proposals, along with several others, are likely to be discussed by Sebi's board at its meeting this week.
Officials said the Securities and Exchange Board of India (Sebi) is also considering changes in its regulatory framework for debenture trustees. Besides, it plans to allow custodial services in the commodity derivatives market to enable institutional participation.
Another proposal involves enabling mutual funds to undertake 'side pocketing' of debt and money market instruments in case of a credit event while ensuring fair treatment to all unitholders.
'Side pocketing' is a mechanism to separate distressed, illiquid and hard-to-value assets from other more liquid assets in a portfolio. It prevents the distressed assets from damaging the returns generated from more liquid and better-performing assets.
As per one proposal to amend the insider trading norms, entities belonging to promoter group will need to make initial and continuous disclosure about their shareholdings and the subsequent share transactions exceeding Rs 10 lakh.
Currently, such disclosure requirements are mandatory for promoters, key management personnel and directors of a company, but there is no obligation on entities belonging to promoter groups.
Officials said that Sebi is also of the view that an earlier proposed exercise for determining a uniform bond valuation methodology to be followed by all regulated entities across the financial sector may not be pursued.
Such an exercise was suggested by a Working Group on Development of Corporate Bond market in India, chaired by H R Khan.
However, Sebi will prescribe high-level principles to be followed uniformly across all mutual funds for strengthening the existing system of valuation of corporate bonds for mutual funds. Regarding the pricing agencies, Sebi plans to evolve a supervisory and regulatory framework.
In another key proposal, Sebi plans to relax the norms for clubbing of investment limits for FPIs.
Currently, the foreign portfolio investors are treated as part of the same investor group and the investment limits of all such entities are clubbed for deriving the investment limit as applicable to a single FPI, in case of the same set of ultimate beneficial owners investing through multiple entities.
Under the proposed norm, multiple entities having common ownership, directly or indirectly, of more than 50 per cent would be treated as part of the same investor group and their investment limits would be clubbed.
Besides, the clubbing of investment limit would not be applicable in case of entities having common control, if the FPIs are appropriately regulated public retail funds. Similar exemptions would be available to FPIs that are public retail funds majority owned by well-regulated public retail funds or those having well-regulated investment managers.
Public retail funds typically include insurance companies, pension funds and mutual funds or unit trusts that are open for retail subscriptions.
Regarding the changes in the OFS framework, officials said the proposed changes have been formulated as per suggestions from the Department of Investment and Public Asset Management (DIPAM) and other stakeholders.
The OFS norms will be eased to allow this mechanism for all companies with market cap of Rs 1,000 crore and above, as against a current limit of top 200 companies.
Also, if the seller fails to get sufficient demand from non-retail investors at or above the floor price on the first day of offer, then the seller may choose to cancel the officer post bidding in full (both retail and non-retail) on the first day itself and not proceed with the offer to retail investors on the second day.
Among other proposals, Sebi is looking at changes in norms requiring the filing of a fresh offer document in case of an OFS where there is a change in the number of shares offered for sale or the estimated issue size by more than 50 per cent.
Besides, norms would be eased for allocation in the net offer in fixed price issues in the SME segment.Also, housing finance companies and systemically important NBFCs may be exempted from disclosure of increase or decrease in shareholding due to encumbrance or release of the encumbrance of shares. A similar exemption already available to scheduled commercial banks and public financial institutions.