SEBI Board Meet Highlights: Key Decisions That Could Benefit Markets, Investors

The Securities and Exchange Board of India approved a number of changes with far-reaching effects on the securities market of the country, during its board meeting on Wednesday.

From an ASBA-like facility for secondary market to significant changes to mutual fund regulations, the decisions are both pro-industry and pro-investor.

Here are some of the key decisions taken by SEBI during the meeting:

SEBI, recognising the vital role played by stockbrokers in the market, had proposed setting up a surveillance mechanism to detect and prevent fraud with brokers at its helm.

The senior management of the broker will be held liable for setting up a strong surveillance mechanism and control system to detect and report any suspicious activity. They will also be held liable for making a well-documented policy to deal with such instances.

The board has approved the proposals and shall integrate them to the existing framework by an amendment to Stock Brokers Regulations. The amendments shall come to effect on Oct. 1, 2023.

An Application Supported by Blocked Amount-like facility for secondary markets has been in the pipeline for some time now. SEBI had even issued a discussion paper on the subject. The regulator has now approved some changes that will make this a reality.

The changes allow investors to block the amounts in their own bank accounts rather than transferring them to the stock broker. This shall be done through UPI. However, the said facility is going to be optional for both investors as well as stockbrokers.

According to the regulator, this will enable investors to earn interest on their funds till such time the amount is debited. It will also enable direct settlement with the clearing corporation and provide client level visibility to clearing corporation, preventing co-mingling of funds.

SEBI has approved a set of amendments to the Mutual Fund Regulations that places increased responsibilities on the trustees. It will provide for core responsibilities of the trustees and will identify areas for potential conflict between asset management companies and unit-holders. It will also make boards of AMCs liable for protecting the interest of unit-holders.

The board has also approved a set of changes that will allow private equity funds and other such entities to be sponsors of mutual funds. These entities under the present regulations are not eligible to be sponsors.

In an effort to improve transparency and streamline certain processes in the securities market, SEBI had proposed several changes to the listing obligations earlier this year. After a market-wide public consultation, the markets regulator has approved some of them.

According to the latest changes, all material agreements, regardless of the fact that the company is privy to them, will now have to be disclosed as long as they have an impact on the control and management of the company.

It has also introduced a quantitative threshold for determining materiality and a stricter timeline for disclosure of material events. Material events have to be disclosed within 30 minutes if the decision is arriving from a board meeting and within 12 hours if it arises from within the company.

Companies that fall within the top 100 listed entities by market capitalisation from Oct. 1, 2023 and those within the top 250 listed entities by market capitalisation from April 1, 2024, will have to verify or deny market rumours.

In other key changes to listing obligations, SEBI has approved proposals that allow a review of certain special rights enjoyed by some of the shareholders. It has also approved some changes that will impact the permanence of the board.

In one of its consultation papers earlier this year, SEBI had highlighted the possible misuse of existing disclosure timelines by freshly listed companies.

According to the regulator, freshly listed companies were misusing the existing timelines to list their shares in a window soon after the disclosure timeline, so as to escape the liability of including last quarter's results. This is undesirable and needed to be addressed, SEBI said.

It has approved some changes that streamline this timeline in order to overcome the challenges posed by immediate submission of financial results post listing.

In order to reduce information asymmetry and the mismatch between issued shares and listed shares, SEBI had proposed some changes to the Issue of Capital and Disclosure Requirements.

Only such entities that have gotten approval to list their pre-bonus securities will be eligible to issue bonus shares, according to the latest changes. The bonus shares can only be issued in dematerialised form.

To address several pressing issues faced by AIFs in India, the regulator has proposed changes to the way such funds operate in the country. After extensive public consultations, the regulator has approved some of them.

AIFs would be eligible to carry forward 75% of the investments to a new scheme, while the remaining 25% would have to be compulsorily liquidated to provide an exit opportunity to investors under the latest changes.

This requires an approval from 75% investors by value. In the absence of investor consent, investments shall be distributed in-specie to the investors.

The regulator has also approved changes that would allow consistent and standardised valuation of AIFs. Proposals to compulsorily dematerialise schemes with corpus more than Rs 500 crore has also been approved by it. Existing schemes shall comply within April 30, 2024.

SEBI has introduced a balanced framework for ESG disclosures. A Business Responsibility and Reliability Report will be introduced in order to enhance the reliability of ESG disclosures. The report will contain certain Key Performance Indicators that listed companies will have to obtain for reasonable assurance.

This will be initially applicable for top 150 listed companies from FY24 and will be extended to top 1,000 listed companies by FY27.

In order to prevent the misuse of funds at the hands of stockbrokers, the regulator has approved a proposal that prevents trading and clearing members from retaining any funds of the investor.

At present, brokers and clearing members retain a portion of investor's funds before placing the remaining amount with the clearing corporation.

Brokers and clearing members will now be expected to pass any remaining funds to the clearing corporation by the end of the day. This 'upstreaming' shall be done only in the form of cash, lien on fixed deposits or pledge of units of Mutual Fund Overnight Schemes.

However, this is not applicable to clearing members and custodians that are banks. The framework will be implemented in two phases. First phase will commence from July 1, 2023.

In order to foster transparency and accountability in the governance of Index providers, SEBI has approved a proposal to regulate Index providers.

At present, there are no provisions to regulate Index providers.

To increase investor participation in securities market and to promote technology-aided dispute resolution, the board has approved several changes that expands the existing Market Infrastructure Institution administered arbitration and conciliation mechanism to hybrid mode.