Green Signal to New Takeover Regulations and other simplification moves by SEBI
In a Meeting held on July 28, 2011, the market watch dog SEBI has come out with various amendment relating to the better governance of the security as well as capital market which includes SEBI Takeover Regulations, SEBI Insider Trading Regulations, Mutual Funds Regulations, ICDR Regulations, Stock Brokers and Sub Brokers Regulations, Merchant Bankers Regulations, RTA Regulations. An analysis of the same is given below:
I. SEBI Takeover Regulations:
1. Increase in threshold limit from 15% to 25%. It seems to be beneficial from the point of Private Equity and Institutional investors who had to restrict themselves to 14.99% stake in every listed company in terms of existing regulations and also for the Companies raising funds from Private Equity and Institutional investors.
2. Increase in Offer Size from 20% to 26%. This is owing to industry pressure against the 100% offer size. Its good move from the point of view of domestic promoters and industry as the cost concerns and funding of offer is addressed to a major extent.
3. Abolition of Non-compete fees. SEBI has accepted the TRAC recommendation of scrapping the non-compete fee. Outright scrapping may not be treated as a right move as the Promoters cannot be treated at par with the general public shareholders specifically where the promoters have real personal contribution in business.
4. Acquisition from the other competing acquirer. In cases of competitive offers, the successful bidder can acquire shares of other bidder(s) after the offer period without attracting Open Offer obligations.
5. A recommendation on the offer by the Board of Target Company has been made mandatory.
6. Voluntary offers have been introduced subject to certain conditions.
7. Existing definition of Control shall be retained as it is.
8. The Board did not accept the recommendation of TRAC to provide for delisting pursuant to an offer and proportionate acceptance.
II. SEBI Insider Trading Regulations:
Now besides the directors and officers of the listed companies, it is mandatory for the promoters and persons who are part of promoter group of a listed company to give the initial disclosures relating to their shareholding at the time of becoming promoter or part of promoter group; and also continuous disclosures whenever there is a change in their holdings exceeding Rs. 5 lakh in value or 25,000 shares or 1% of total shareholding or voting rights, whichever is lower.
III. Amendment to SEBI (Mutual Funds) Regulations, 1996
1. Transaction charge of Rs 100 for old customers and Rs 150 for the first time Mutual Fund investor for investment of over Rs 10,000.
2. No transaction charge on (a) transactions other than purchases/ subscriptions relating to new inflows, and (b) direct transactions with the Mutual Fund.
3. SEBI to allow common set of fund managers and research analysts for different pooled assets like offshore funds and pension funds.
4. Transparency of information
4.1. Advertisements to include point to point return on a standard investment of Rs. 10,000 and other performance related disclosures.
4.2. More granular disclosure of Assets Under Management (AUM) figures giving break up of debt/equity/balanced and also geography wise disclosures.
5. Control over mutual fund distributors
As a first move towards regulating the distributors of Mutual Funds, the Board has provided that the selected distributors will be regulated through Asset Management Companies (AMCs) by putting in place the due diligence process to be conducted by AMCs. The due diligence process may be initially applicable for those distributors satisfying one or more of the following criteria:
- Multiple point presence in more than 20 locations;
- AUM raised over Rs.100 crore across industry in the non institutional category but including high Networth individuals (HNIs);
- Commission received of over Rs. 1 crore p.a. across industry;
- Commission received of over Rs. 50 lakh from a single mutual fund.
6. Dispatch of Common Account Statement to Investors
6.1. Monthly statement in respect of transaction in any of the folio of the Investor across the mutual funds;
6.2. Half yearly statement for all the non transacted folios.
7. Green initiative and cost effective measures
7.1. Annual Reports to sent by Email in respect of the unit holders whose email ids are registered with the Mutual Funds.
7.2. Dispatch of hard copies of Annual Report in respect of the unit holders whose email ids are not registered with the Mutual Funds and the investors who request for hard copies notwithstanding their registration of email ids.
8. All the Operations of a Mutual Fund to be located in India
The Board has provided for the Operations of a Mutual Fund including trading desks, unit holder servicing, and investment operations mandatorily to be based in India. In case of mutual funds having operations abroad will be required to immediately confirm that they shall wind up the same and bring them onshore within a period of one year from the notification amending the Regulations which is further extendable by another one year on SEBIâ€™s discretion.
9. Provision for a framework for setting up of Infrastructure Debt Funds (IDFs)
The IDF can be set by any existing mutual fund or by the companies which have been carrying on activities or business in infrastructure financing sector for a period of not less than five years and fulfill the eligibility criteria provided in Regulation 7 of Mutual Fund Regulations.
IV. Harmonization and Rationalization of KYC in Securities Market:
SEBI Board has passed a proposal of setting up a mechanism wherein one or more SEBI regulated KYC Registration Agency (hereinafter referred to as â€œKRAâ€) will undertake KYC at the stage of account opening for all clients in the securities market through SEBI Regulated Points of Service (PoS). The change in methodology of KYC process does not compromise PML Rules and FATF Standards; rather the proposed change will strengthen the uniformity of the conduct of KYC process.
V. Amendment to SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009
1. Review of Bid-cum-Application Form and Abridged Prospectus to include the company/ project specific information and highlight materially relevant disclosures such as peer comparison of important financial ratios and risk factors;
2. Circulation of General Information Document (GID) in English and Hindi or Regional Language(s) along with the Application form giving the Information which is of generic nature and not specific to the issuer.
3. Eligibility criteria for companies coming out with IPOs through the â€˜profitability track recordâ€™
- In case of a pure â€˜Offer for Saleâ€™, the requirement that not more than 50% of the â€˜net tangible assetsâ€™ shall be held as â€˜monetary assetsâ€™, shall not be applicable;
- The requirement of track record of distributable profits for at least three out of immediately preceding five years shall be complied with both on stand-alone as well as consolidated basis.
4. Disclosure of voting results by listed entities
Now it has been mandated for the Top 500 listed companies to disclose in a prescribed format, voting results/ patterns on their websites and to the exchanges within 48 hours from the conclusion of the concerned shareholdersâ€™ meeting to gives a better picture of how the meetings are conducted and how the different categories of investors have voted on a resolution. Depending on experience gained, the disclosure requirement will be extended to all the listed companies after a period of one year.
5. Green Initiative
As part of green initiative to contain the environmental cost incurred by listed entities in supplying hard copies of full annual reports to all shareholders, it has been decided that listed entities shall supply:
- soft copies of full annual reports to all those shareholders who have registered for the same
- hard copy of abridged annual reports to others
- hard copies of full annual reports to those shareholders who request for the same
6. Disclosure of quarterly financial results by listed companies
- Listed companies to disclose figures in respect of immediately preceding quarter as well in addition to the existing requirements.
- Companies which opt to submit audited annual results within 60 days of end of financial year in lieu of last quarter results shall also submit the last quarter results along with the audited annual results.
VI. Simplifying and rationalizing Trading Account Opening Process
- All client-broker agreements shall be replaced with the â€˜Rights and Obligationsâ€™ documents, which shall be mandatory and binding on all parties.
- The number of client signatures will reduce substantially. In most of the cases, signatures will be required only on one document i.e. Account Opening Form
- The cost of compliance for both clients and brokers will come down.
Stock Broker to give following information to the Investors at the time of account opening process:
- The stock broker will give a tariff sheet specifying various charges, including brokerage, payable by the clients.
- A list of â€˜Doâ€™s & Donâ€™tsâ€™ while trading in the market as prescribed by SEBI.
- Information on point of contact for investors within the stock broking firm, including contact details of senior officials and information related to arbitration procedures.
Necessary amendments to the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 have been approved by the Board to implement the new procedures.
VII. Due diligence records to be maintained by merchant bankers
Merchant bankers to maintain records and documents pertaining to due diligence exercised in pre-issue and post-issue activities of issue management, takeover, buyback and delisting of securities so as to ensure that all the merchant bankers follow same standards of compliance and the level of due diligence can be checked during inspection of merchant bankers by SEBI.
VIII. Review of net worth for Registrars to an Issue and Share Transfer Agents
Considering the present day capital needs for setting up a RTA business with adequate infrastructure, the Board has approved amendments to SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 stipulating the new net worth requirement of RTAs which are as follows:
- Category I RTAs – Rs. 50 lakh
- Category II RTAs – Rs. 25 lakh
Further, the existing RTAs have been granted a time period of three years to increase their net worth.
IX. Decentralisation of work to Regional Offices and opening of Local Offices
The Board approved the proposal relating to strengthening of Regional Offices (ROs) and opening of new Local Offices (LOs) at state capitals in phased manner. Head Office will continue to deal with policy and important operational issues. Additional operational work will be delegated to Regional Offices.