SEBI board to review mutual fund norms, broker rules, IPO lock-ins, CRA mandate

Comprehensive review of MF regulations, including TER
A key proposal relates to capping brokerage fees for asset management companies (AMCs) under mutual fund regulations. SEBI has proposed, in a consultation paper, to cap brokerage at 2 basis points for the cash segment from the existing 12 basis points, and at 1 basis point for derivatives from the current 5 basis points.

Institutional brokerages and AMCs have made representations seeking relief. The board may also revisit proposals to reduce total expense ratios (TER). The consultation paper had recommended a 15 basis point cut for open-ended schemes and 25 basis points for closed-ended schemes.

SEBI had also proposed the exclusion of statutory levies such as STT, GST, CTT, and stamp duty from TER limits. Currently, only GST on management fees is charged separately, but other levies are included within TER. Another proposal allows AMCs to introduce performance-linked expense ratios. SEBI has said these measures aim to enhance transparency and simplify regulatory language.

Review of stockbroker regulations

SEBI has said the proposals aim to simplify compliance, reduce costs, strengthen investor protection and align regulations with the Companies Act, 2013. For the first time, algorithmic trading has been formally defined as any order generated or placed using automated execution logic, and the definition of proprietary trading has been clarified.

SEBI has also suggested granting stock brokers access to the Negotiated Dealing System-Order Matching (NDS-OM) platform for trading government securities and defining an Execution Only Platform (EOP) for digital platforms facilitating transactions in direct mutual fund plans.

Fixing IPO lock-in issues and simplifying disclosures

The board is likely to consider amendments to address IPO lock-in issues and simplify disclosures. SEBI may amend ICDR regulations to allow pledged pre-issue shares to be marked as locked-in through a technology-enabled mechanism. Currently, while most pre-issue shares must be locked in for six months post-allotment, depositories are unable to tag pledged shares as locked-in, leading to compliance challenges, listing delays, and coordination issues with non-cooperative or untraceable shareholders during tight IPO timelines.

Separately, SEBI has proposed replacing the abridged prospectus with a standalone, easy-to-understand 15–20-page Offer Document Summary covering key IPO details.

Revamped conflict-of-interest code

Recommendations of a High-Level Committee led by former Chief Vigilance Commissioner Pratyush Sinha on revamping the conflict-of-interest code for SEBI board members and officials may also be discussed. These include mandatory disclosures, public asset declarations by senior officials, uniform trading norms, insider status for the chairman and whole-time members, a recusal framework, cooling-off periods, and a whistle-blower mechanism. Some officials have raised privacy concerns over certain disclosure proposals.

Easier dematerialisation of old shares

The board may approve measures to simplify dematerialisation and transfer of old physical shares lodged before April 1, 2019. Proposals include a time-bound relaxation for transfer, direct credit of verified shares to demat accounts and scrapping the Letter of Confirmation process.

Incentives for debt issues

SEBI board may clear a proposal allowing debt issuers to offer incentives such as higher coupon rates or discounts to select investors. Incentives may be extended to senior citizens, women, armed forces personnel, and retail investors, and will apply only to original allottees. Currently, incentives are prohibited. SEBI noted a sharp fall in public NCD issuances in FY25 and believes transparent, upfront-disclosed incentives could make debt securities more attractive and increase public issuances.

Higher HVDLE threshold

SEBI board may approve raising the High Value Debt Listed Entities (HVDLE) threshold from Rs 1,000 crore to Rs 5,000 crore of outstanding non-convertible debt, which would significantly reduce the number of entities subject to stricter governance norms.

SEBI had floated a consultation paper and also suggested streamlining board and committee requirements, easing subsidiary compliance, aligning norms with equity regulations, and rationalising related party transaction disclosures. The measures aim to reduce regulatory burden, address stakeholder concerns, especially from NBFCs, and encourage efficient participation in debt capital markets.

Expanding the mandate for credit rating agencies

The SEBI board is likely to deliberate on the proposal to expand the mandate for credit rating agencies. The proposal is to allow Credit Rating Agencies to rate financial instruments falling under the purview of other financial sector regulators, even where specific rating guidelines are absent, thereby addressing industry representations and existing regulatory gaps.

Such non-SEBI-regulated activities will be permitted only on a fee-based, non-fund basis. They must be carried out through separate, ring-fenced business units with robust Chinese Wall arrangements. SEBI has mandated strict segregation of staff, records, grievance redressal mechanisms, and disclosures, including clear disclaimers on the non-availability of SEBI investor protection.

The regulator has also proposed enhanced audit and board-level oversight to ensure compliance. Other proposals related to alternative investment funds and certification norms for associated persons may also be discussed.

An email seeking comments from SEBI did not elicit any response.