[Analysis] Key Highlights of the SEBI’s Board Meeting Decisions – March 2024

Introduction

1. SEBI to launch Beta version of optional T+0 settlement for a limited set of 25 scrips
2. Exemption of additional disclosure requirements for specific FPIs
3. Relaxation of timelines for disclosure of material changes by Foreign Portfolio Investors
4. SEBI nods to provide flexibility to FPIs in dealing with securities post-expiry of registration
5. Facilitation of ease of doing business for companies coming for IPOs/fundraising
6. Facilitating ease of doing business for listed companies-ongoing compliance requirements
7. Facilitating a uniform approach to verification of market rumours by equity-listed entities
8. Allowing Category I and II AIFs to create encumbrances on their equity holdings in infrastructure sector investee companies
9. SEBI to introduce due diligence measures for AIFs, AIF Managers and their Key Managerial Personnel
10. Extending timeline for mandatory applicability of Listing Norms for High Value Debt Listed Entities (HVDLEs)
11. SEBI to allow AIFs and their investors to deal with unliquidated investments that remain unsold
12. Providing a framework for issuance of subordinate units by a privately placed InvIT
13. Recognizing the Stock Exchange as a ‘Research Analyst Administration and Supervisory Body’

Introduction

The Securities and Exchange Board of India (SEBI) through its board meeting dated March 15, 2024, has approved of a series of proposals aimed at easing regulatory requirements and streamlining business operations for Foreign Portfolio Investors (FPIs). These measures are expected to enhance efficiency and flexibility for FPIs, promoting smoother operations, and streamlining regulatory requirements.

The Press Release (PR No. 5/2024) dated March 15, 2024 highlights the key approvals made by the Board. These include a) Exempting additional disclosure requirements for specific FPIs, b) relaxation of timelines for disclosure of material changes by FPIs, c) facilitating ease of doing business for companies coming for IPOs/fundraising, d) launching the Beta version of optional T+0 settlement for a limited set of 25 scrips, e) facilitating a uniform approach to verification of market rumours by equity-listed entities.  The key highlights of the SEBI’s board meeting in detail are as follows:

1. SEBI to launch Beta version of optional T+0 settlement for a limited set of 25 scrips

The SEBI, in its board meeting, has approved the launch of the Beta version of optional T+0 settlement, for a limited set of 25 scrips and with a limited set of brokers. In parallel, SEBI shall continue to do further stakeholder consultation, including with users of the Beta version. Further, the Board is required to review the progress at the end of 3 and 6 months from the date of implementation and decide on further course of action.

Impact

SEBI’s initiative for the Beta version of option T+0 settlement paves the way to accelerate market liquidity and foster smoother trading experiences. With stakeholder consultations and regular board reviews in place, it aims to create a dynamic financial landscape.

2. Exemption of additional disclosure requirements for specific FPIs

To facilitate ease of doing business, SEBI, in its board meeting, has approved of a proposal to exempt additional disclosure requirements for Foreign Portfolio Investors (FPIs) holding more than 50% of their India equity Assets under Management (AUM) in a single corporate group.

This exemption applies if the concentrated holdings of these FPIs are in a listed company with no identified promoter, subject to the following conditions –

• FPI holds not more than 50% of its India equity AUM in the corporate group, after excluding its holding in the parent company with no identified promoter.
• The composite holdings of all such FPIs (that hold in excess of the 50% concentration criteria and are not exempted) in the company with no identified promoter is less than 3% of its total equity share capital.

Impact

SEBI’s move to exempt additional disclosure requirements for FPIs signifies an effort to streamline regulatory burdens and enhance the ease of doing business. By easing reporting burdens under specified conditions, this aims to promote investor confidence and support smoother market operations.

3. Relaxation of timelines for disclosure of material changes by Foreign Portfolio Investors

To facilitate ease of doing business for FPIs, SEBI, in its board meeting has approved of a proposal to relax timelines for the disclosure of material changes by FPIs. Presently, FPIs are required to disclose material changes to their designated depository participant (DDP) within 7 working days.

As per the new framework, material changes shall be categorized into two types viz. Type I and Type II. Type I material changes must continue to be informed by FPIs to their DDP within 7 working days of the occurrence of the change. However, supporting documents for the same must be provided within 30 days of such change.

On the other hand, other material changes categorized as Type II must be informed along with supporting documents within 30 days of such change.

Impact

The relaxation of timelines for the disclosure of material changes aims to streamline reporting processes, thereby enhancing operational efficiency. This change offers greater flexibility to FPIs while ensuring transparency and regulatory compliance.

4. SEBI nods to provide flexibility to FPIs in dealing with securities post-expiry of registration

To provide flexibility to FPIs, SEBI has introduced measures to deal with securities post-expiry of registration. SEBI has approved the following proposals –

4.1 Permitted reactivation of expired FPI registrations within 30 days

SEBI has approved of the proposal to reactivate expired FPI registrations within 30 days. FPI registrations that expire due to non-payment of a registration fee, must now be permitted to be reactivated within 30 days of expiry. Such FPIs are also permitted to dispose of their securities holdings during these 30 days.

Further, in cases, where FPI chooses not to reactivate its registration within 30 days, it shall be permitted a period of 180 days for disposal of its securities.

4.2 180 days or end of registration block to be provided for disposal of securities in certain cases

A minimum period of 180 days or the end of the registration block, whichever is later, must be provided for the disposal of securities in certain specific cases such as an adverse change in the compliance status of the home jurisdiction of the FPI or non-submission of documents for reclassification of FPI.

4.3 An additional period of 180 days to be provided to FPIs for disposal of securities

In cases, where the securities held by an FPI have not been disposed of even after the lapse of the specified period of 180 days, the following shall apply –

• An additional period of 180 days will be provided to FPIs for the disposal of securities, subject to a financial disincentive of 5% of sale proceeds, which shall be credited by the custodian to SEBI’s IPEF.
• Securities remaining unsold after the expiry of an additional 180-day period shall be deemed to have been compulsorily written off by the FPI.

4.4 Provision of a One-time opportunity of 360 days for FPIs to dispose of securities in existing cases

SEBI has approved of the proposal of providing a one-time opportunity of 360 days for FPIs to dispose of their securities.

For existing cases, where securities are lying in the accounts of FPIs whose registration has expired, a one-time opportunity of 360 days (180 days without any financial disincentive, and an additional 180 days with a 5% financial disincentive) shall be provided to FPIs for disposal of such securities.

Further, securities remaining unsold after the expiry of the 360 days shall be deemed to have been compulsorily written off by the FPI.

4.5 Transfer of written-off securities to an escrow account operated by an exchange-empanelled broker

Written-off securities must be transferred to an escrow account, operated by an exchange-empanelled broker, who shall attempt to sell the securities at the available market price until the securities are disposed of. Further, proceeds from the sale must be transferred to the SEBI’s IPEF.

Impact

These measures promote smoother operations and greater transparency in managing the assets, thereby fostering investor confidence and regulatory compliance within the market.

5. Facilitation of ease of doing business for companies coming for IPOs/fundraising

To facilitate ease of doing business for companies coming for IPOs/fundraising, the Board has approved the amendments to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 in respect of the following –

5.1 Eliminates requirement of 1% security deposit in public/rights issue of equity shares

The SEBI has approved the amendment of eliminating the requirement of a 1% security deposit in public/rights issues of equity shares.

5.2 Contribution towards minimum promoters’ contribution without being identified as a promoter

Promoter group entities and non-individual shareholders holding more than 5% of the post-offer equity share capital are to be permitted to contribute towards minimum promoters’ contribution (MPC) without being identified as promoter.

5.3 Equity shares from conversion of compulsorily convertible securities held for a year to be considered for MPC req.

Equity shares resulting from the conversion of compulsorily convertible securities held for a year before filing the draft Red Herring Prospectus (DRHP) are to be considered for meeting the ‘Minimum Promoters’ Contribution’ (MPC) requirement.

5.4 Increase or decrease in size of offer for sale to be based on issue size or no. of shares

The increase or decrease in size of an offer for sale (OFS) requiring fresh filing shall be based on only one of the criteria i.e. either issue size in rupees or number of shares, as disclosed in the draft offer document.

5.5 Flexibility in extending bid/offer closing date by a min. of 1 day on account of force majeure

The Board has approved the flexibility in extending the bid/offer closing date on account of force majeure events by a minimum of 1 day instead of the present requirement of a minimum of 3 days.

6. Facilitating ease of doing business for listed companies-ongoing compliance requirements

To facilitate the ease of doing business for listed entities, the Board has approved amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 in respect of the following –

6.1 Market capitalization-based compliance  requirements to be based on average market capitalization of 6 months

The market capitalization-based compliance requirements for listed entities are to be determined based on the average market capitalization of 6 months ending December 31, instead of a single day’s (i.e. March 31) market capitalization.

Further, to ease the compliance requirements, a sunset clause of 3 years for cessation of applicability of market capitalization-based provisions is also being introduced.

6.2 Extension of Timelines for filling up vacancies of KMPs from 3 months to 6 months

SEBI has approved the amendment for the extension of timelines for filling up vacancies of Key Managerial Personnel (KMPs) that require the approval of statutory authorities.

6.3 Reduction of timelines for prior intimation of board meetings to 2 working days

SEBI has approved the amendment relating to the harmonization and reduction of timelines for prior intimation of board meetings to 2 working days.

6.4 Increasing time gap between two consecutive meetings of Risk Management Committee from 180 days to 210 days

SEBI has approved the amendment of increasing the maximum permitted time gap between two consecutive meetings of the Risk Management Committee from 180 days to 210 days. This is done to provide flexibility to listed entities to schedule the meetings.

7. Facilitating a uniform approach to verification of market rumours by equity-listed entities

The Industry Standards Forum (ISF), comprising of three industry associations viz. ASSOCHAM, CII and FICCI took up the rumour verification requirement as one of the pilot projects for formulating standards for effective implementation of the said requirement, in consultation with the SEBI.

Based on the discussions with ISF and consultation with stakeholders, a proposal was presented to the Board to establish a uniform approach to the verification of market rumours by equity-listed entities. The Board approved the following measures –

• Specifying objective and uniformly assessed criteria for rumour verification in terms of material price movement of equity shares of the listed entity.
• Promoters, directors, KMPs and senior management to provide timely response to the listed entity for verifying market rumour.
• Unverified events or information reported in print or electronic media is not to be considered as ‘generally available information’ under SEBI Insider Trading norms.

Impact

It aims to infuse investors’ confidence in equity markets by formulating standards and seeks to enhance transparency, mitigate market uncertainty and safeguard investor trust.

8. Allowing Category I and II AIFs to create encumbrances on their equity holdings in infrastructure sector investee companies

To provide ease of doing business for Alternative Investment Funds (AIFs) and to foster an ecosystem where private capital effectively complements the various modes available for infrastructure financing, the Board has approved the proposal to allow Category I and II AIFs to create an encumbrance on the equity of its investee companies in the infrastructure sector.

This is done to facilitate the raising of debt/loan by such investee companies, subject to certain conditions, including compliance with RBI regulations. Further, for this purpose, the companies in the infrastructure sector are such companies which are engaged in the business of development, operation or management of projects in any of the infrastructure sub-sectors listed in the Harmonised Master List of Infrastructure sub-sectors as issued by the Government of India.

Impact

This initiative promotes flexibility in investment strategies and encourages participation in infrastructure projects, thereby fostering economic growth and development.

9. SEBI to introduce due diligence measures for AIFs, AIF Managers and their Key Managerial Personnel

The Board has approved a proposal to require AIFs, Managers of AIFs and their Key Managerial Personnel (KMPs) to carry out specific due diligence of their investors and investments. This measure aims to prevent AIFs from facilitating circumvention i.e. avoiding specified regulations administered by financial sector regulators.

The objective is to enhance trust in the AIF ecosystem, thereby paving the way for ease of doing business.

10. Extending timeline for mandatory applicability of Listing Norms for High Value Debt Listed Entities (HVDLEs)

The Board has approved the proposal to extend the timeline for mandatory applicability of listing norms (i.e. Regulations 16 to 27 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015) and compliance for High Value Debt Listed Entities till March 31, 2025. This measure aims to promote smoother compliance processes and boost investor confidence in the debt market.

11. SEBI to allow AIFs and their investors to deal with unliquidated investments that remain unsold

The Board has approved a proposal to allow AIFs to deal with unliquidated investments that are not sold due to lack of liquidity during the winding-up process, by continuing to hold such investments in the same scheme of the AIF and entering into a Dissolution Period. The said facility of entering into the Dissolution Period has been introduced in place of the existing option of launching a new scheme (viz. Liquidation Scheme).

Further, the Board has also approved the proposal to provide a one-year additional Liquidation Period to schemes of AIFs to deal with unliquidated investments whose Liquidation Period had expired in the past or shall expire within 3 months from the date of notification of amendment to AIF Regulations, subject to certain conditions.

Impact

This seeks to provide AIFs with more flexibility to handle unliquidated investments, thereby mitigating potential liquidity risks. Also, it aims to streamline operations, enhance investor protection and maintain stability.

12. Providing a framework for issuance of subordinate units by a privately placed InvIT

The Board has approved amendments to the SEBI (Infrastructure Investment Trusts) Regulations, 2014 to provide a framework for the issuance of subordinate units by privately placed InvITs.

The objective of the framework is to enable the usage of subordinate units to bridge the valuation gaps that may arise as a result of differences in the valuation of an asset assessed by the Sponsor (in its capacity of the asset seller) and the InvIT (in the capacity of the asset buyer). The framework is also designed to include risk mitigation measures in respect of such units.

13. Recognizing the Stock Exchange as a ‘Research Analyst Administration and Supervisory Body’

The Board has approved of the proposal to recognise a stock exchange as a Research Analyst Administration and Supervisory Body” (RAASB) and “Investment Advisers Administration and Supervisory Body” (IAASB). In the case of Investment Advisors (IAs), the RAASB framework will be fee-neutral to the Research Analysts.

Further, to provide ease of doing business and to ensure smooth operationalisation of the RAASB/IAASB framework and prevent disruption, the Board approved the deemed enlistment of existing registered RAs/IAs.

Dive Deeper:
[Analysis] Key Highlights of the SEBI Board Meeting | 2021