The year 2021 will be memorable for many reasons. One of the best examples is this year’s record-breaking stock market performance – 65 companies went public and the benchmark indices skyrocketed, with the BSE Sensex crossing the 50,000 mark for the first time.
With stocks booming, the Securities and Exchange Board of India (Sebi), the market regulator, had its hands full over the past 12 months, changing norms to strengthen the system and make it fairer and more transparent for investors.
A look back at SEBI’s notable decisions taken at its six board meetings over the year.
IPO reforms, mutual fund regulations, NII allocations - December 28
At its last board meeting of 2021, Sebi amended mutual fund regulations, tweaked allocations for non-institutional investors (NIIs) and fine-tuned rules for initial public offerings.
IPO reforms
The board amended the norms for making an offer for sale during an IPO. As per the new rules, shareholders with more than 20 percent of the pre-issue shareholding cannot sell more than half their stake during an IPO. An investor with a less than 20 percent stake cannot sell more than 10 percent of the pre-issue shareholding of the issuer.
The regulator increased the lock-in period for anchor investors. For 50 percent of the portion allocated to anchor investors, a lock-in of 90 days from the date of allotment will apply for issues opening on or after April 1, 2022, Sebi said in a press release. The existing lock-in of 30 days will continue for the remaining 50 percent.
The board tightened the amount that companies can raise for the future, as yet unidentified acquisitions or investment targets. In the case of book-built issues, a minimum price band of at least 105 percent of the floor price will apply for all issues opening on or after notification.
NII allocation norms
The regulator revised the allocation norms for non-institutional investors. From April 1, 2022, for book-built issues, two-thirds of the portion available for NIIs will be reserved for those applying for more than Rs 10 lakh of shares, while the remainder will be for those bidding for shares worth Rs 2 lakh to Rs 10 lakh.
Mutual fund regulation
The board made it mandatory for trustees of a mutual fund to obtain the consent of a majority of unitholders for winding up a scheme. Sebi approved a mandate for mutual funds to follow the Indian Accounting Standard from FY24.
Superior voting rights, SSE framework, silver ETFs - September 28
Sebi proposed to ease rules related to superior voting rights, approved the creation of the Social Stock Exchange, and introduced silver exchange-traded funds, among other decisions.
Superior voting rights
Sebi said at its meeting that promoters with a net worth of up to Rs 1,000 crore could have superior voting rights in their companies, increasing the threshold from Rs 500 crore.
Social stock exchange
The board approved the creation of the SSE for fundraising by social enterprises. The SSE framework was developed based on the recommendations of a working group and a technical group constituted by the market regulator.
Silver exchange-traded funds
The board approved the amendment to the SEBI (Mutual Funds) Regulations, 1996, to allow silver ETFs under safeguards similar to those governing gold ETFs under the existing regulatory framework.
FPI constituents
To facilitate investment in the Indian securities markets through the foreign portfolio investment (FPI) route, the board permitted resident Indians (other than individuals) to become constituents of FPIs that are registered as alternative investment funds in International Financial Services Centres.
IPO reforms, relaxation of disclosure requirements - August 6
Sebi decided to reform IPO rules and simplify requirements for group company disclosures.
IPO reforms
Sebi amended the lock-in period for an issue that involves an offer for sale or financing, other than for capital expenditure for a project. The minimum promoters’ contribution of 20 percent, in such cases, should be locked in for 18 months from the date of allotment in the IPO and follow-on public offer. Currently, the lock-in period is three years.
In all these cases, the promoter shareholding above the minimum contribution will be locked in for six months instead of the existing one year. Sebi decided on several amendments in IPO norms, which it stated in a press release.
Relaxed disclosure requirements
The board approved ways to reduce disclosure requirements during an IPO. The measures include rationalising the definition of the promoter group where the promoter of the issuer company is a corporate body to exclude companies that have the same financial investors. The board agreed to shift from the concept of a promoter to ‘person in control’ or ‘controlling shareholders.’
In addition, the disclosure requirements in the offer documents in respect of the issuer company’s group entities should be rationalised to exclude disclosure of the financials of the top 5 listed or unlisted group companies. These disclosures will continue to be made available on the website of the group companies.
IDs, InvITs, REITs; insider trading informant rewards - June 29
The regulator amended regulations for independent directors, changed the criteria for infrastructure investment trusts (InvITs) and real estate investment trusts (REITs), and increased rewards for insider trading informants.
Appointing IDs
Appointments, reappointments, and removal of independent directors must be made through a special resolution of shareholders for all listed entities. Sebi elaborated on the appointment process of independent directors to be followed by the nomination and remuneration committee, ordering a modification in the committee. Several amendments mentioned in Sebi’s press release come into effect from January 1, 2022.
Relaxed REIT, InvIT rules
The board revised the minimum application value to be in the range of Rs 10,000-15,000 from Rs 1 lakh and its multiples previously and revised the trading lot to one unit for REITs and InvITS. It also relaxed norms for unlisted REITs and InvITs tapping the bond market.
Accredited investors
The board approved a proposal to introduce a framework for accredited investors, a class of investors who may be considered well-informed or well-advised about investment products.
Informant rewards
The regulator increased the reward amount payable to informants under insider-trading rules to Rs 10 crore from Rs 1 crore, a much-awaited decision as the earlier amount appeared ineffective.
Delisting rules, sustainability reporting, startups - March 25
Sebi approved a raft of measures, including making delisting of shares more transparent and efficient, requiring companies to disclose sustainability issues, and making the public offering of startups easier.
The regulator mandated the public disclosure of analyst calls, quick reporting of earnings, and expanded the requirement of setting up a risk management committee to the top 1,000 listed companies by market capitalisation from 500 listed entities previously.
Delisting norms
Under the new norms, a promoter or acquirer must disclose the intention to delist by making an initial public announcement. It introduced and revised timelines for various activities involved in delisting, the introduction of a committee of independent directors for recommendations, and the specification of an indicative delisting price not less than the floor price.
Innovators growth
Sebi cut the period for issuers to have 25 percent of pre-issue capital held by eligible investors from two years to one year, which was significant demand from startups.
Reclassification of promoters
The Sebi board acted on a long-pending demand of corporate houses. It changed the requirement of approval from shareholders in cases where the promoter seeking reclassification holds less than 1 percent of the shares, subject to the promoter not being in control.
The board introduced new requirements for sustainability reporting by listed entities. The new report will be called the Business Responsibility and Sustainability Report and will replace the previous Business Responsibility Report. The new report will lay emphasis on quantifiable metrics, which allow for easy measurement and comparability across companies, sectors and time periods.
This report by Moneycontrol has details on Sebi’s decisions at the meeting.
Ease for large issues - February 17
Sebi took significant decisions at its first board meeting for 2021. Finance minister Nirmala Sitharaman customarily addressed the board after the budget presentation in Parliament.
Change in IPO norms
The regulator approved changes in the norms for IPOs to allow a smaller float for large companies. The board recommended that for issuers with a post-issue market capital exceeding Rs 1 lakh crore, the requirement of the minimum public offer will be cut from 10 percent of the post-issue market capital to Rs 10,000 crore plus 5 percent of the incremental amount beyond Rs 1 lakh crore.
These issuers must achieve at least 10 percent public shareholding in two years and at least 25 percent public shareholding within five years of listing.
As a result of amendments in IPO norms, the dilution requirement for post-issue capitalisation of over Rs 4,000 crore was lowered to 5 percent from 10 percent previously, as per Sebi’s press release.
Ease of doing business
To promote ease of doing business, Sebi approved the merger of the Regulatory Fee on Stock Exchanges Regulations, 2006, with the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018.
Amending the regulations, the board noted that the post-graduate programme in equity markets of not less than one year offered by NISM is an eligible qualification for portfolio managers, investment advisers, and research analysts.
Budget announcements such as gold spot exchange, investor charter, and securities code were also discussed.
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