In its last Board meeting before the Budget 2018, Securities & Exchange Board of India has deliberated upon certain key issues surrounding across Indian securities market. It would be fair to say that the recent moves of the Regulator seem to aim at striking a balance between ‘Governance Requirements’ and ‘Ease of Doing Business’ in Indian Securities Market.
Here’s an outline of major decisions taken by the board of securities market regulator at Mumbai:
- Additional methods introduced to achieve Minimum Public Shareholding (MPS):
- Disclosure norms for financial results by issuer of listed debt streamlined with disclosure norms for listed Equity issuers:
- Enabling Integration of Commodity and Equity markets at Exchange level:
- Approval of framework for listing and trading of securities receipts:
- Strengthening Governance framework for Credit rating Agencies (CRAs) and Mutual Funds:
- Other amendments to facilitate ease of doing business, strengthening governance framework and promoting growth of securities market:
Two new routes viz. (i) Qualified Institutions Placement; and (ii) sale of shares upto 2% by promoters in open market, would be allowed for complying with MPS requirements. With this listed companies and their promoters will have a range of modes available (total 8) to comply MPS requirements laid down under Rule 19A of SEBI (Securities Contract Regulation) Rules.
The Quarterly & Half Yearly financial results reporting, as applicable to the listed Equity instruments, would be mandated even for listed debt instruments, as against the extant requirement of providing only the half yearly results.
In yet another move to create unified securities market, it has been decided to allow Exchanges to offer a unified platform for trading of commodity and equity instruments.
Following the budget announcement of 2017-18, SEBI has approved framework for listing of securities receipts, which aims at providing a bigger fund raising platform to ARCs thus, ultimately providing a tool to deal with the burning issue of Bank NPAs.
Among other decisions, it has been decided that CRAs and Mutual Funds would not be allowed to have substantial cross holdings (i.e. 10%) or representation on Board of Directors of another CRA or Mutual Fund, respectively, either directly or through any shareholder. This will aim at ruling out possibility of conflict of interests. Further, on the subject of balancing conflict of interests, the Board has also decided to come out with a consultative paper on creating a unified regulatory standard for all intermediaries providing investment advisory services so as to segregate the two activities i.e. providing investment advice and distribution of the investment products/ execution of investment transactions.
Regulations for REITs, InvITs and FPIs would be rationalized to boost ease of doing business and channelization of more investments.
- Over the years, it was being felt that in cases where the Promoters holding was marginally crossing the threshold of 75% , the modes, as already allowed for complying with MPS were not too apt. So, allowing sale of upto 2% Promoter shares in open market and QIP route for compliance with minimum public float norm is surely a welcome move, as it will enable more than 150 listed firms to structure their shareholdings, which were facing difficulties in complying with MPS norms. Till now, Offer for sale has been the most prevalent route for complying with the MPS norms, wherein excess Promoters’ holding is offered to public at large in a regulated manner. But allowing the Promoters to sell upto 2% of their excess holding in open market will surely boost up the whole process. But, it is yet to be seen, what regulatory compliances/ provisions will be needed to be followed for the same.
- Listing Regulations, with regard to Listed Debt Securities, have been made stringent. The Quarterly & Half Yearly financial results reporting, as applicable to the listed Equity instruments, have been mandated even for listed debt instruments, as against the extant requirement of providing only the half yearly results. However, it was being felt that 6 months is comparatively a longer period for the financial status to be disclosed. This was the need of the hour and will bring in more transparency in the entire Listings space. Uptil November 2017, appx 698 companies with Listed Debt instruments were listed on BSE alone.
- With unification of commodity and equity trading at exchange level, the markets would move towards integration at all three levels i.e. Unified Regulator, Unified Exchanges, Unified Intermediaries. The move is expected to bring numerous synergy benefits to the market at large.
- Though SEBI has made quite a move, however nothing could come to surface on the much anticipated and talked of relaxations for listed entities undergoing Insolvency proceedings under Insolvency and Bankruptcy Code (‘IBC’). In larger public interest, SEBI may soon have to come out with relaxations for such companies because the short stint as provided in IBC for carrying out the Resolution Process, at one hand and tight SEBI regulations (viz. SAST/ LODR/MPS/ Delisting etc), on the other make it onerous to effectively carry out the resolution plan.
- it is also imperative to note that though nothing regarding the issue of leak of price sensitive information of listed companies on whatsapp (infamous as whatsapp leak case), finds a place in outcome of the Meeting, SEBI chairman in press conference held after the meeting made it clear that the issue is under consideration and appropriate actions, both enforcement and corrective, would be taken to curb such malpractices. He also made a remark on need of advancing the existing surveillance systems.