SEBI Board To Discuss Easier Startup Listing Rules, FPI Investment Clubbing Norms

The market regulator will discuss a slew of measures at its board meeting on Wednesday for expanding its offer-for-sale framework to more companies, relax its norms for clubbing of investment limits by established foreign investors and tighten insider trading rules, officials said.

A number of other important matters will also be discussed such as relaxations for new-age ventures in sectors like e-commerce, data analytics and bio-technology to raise funds and get the shares of these new-age ventures traded on stock exchanges and creating a separate category of “difficult to recover” cases for optimal utilisation of its resources, they added.

Officials said, the Securities and Exchange Board of India is also considering changes in its regulatory framework for debenture trustees. Besides, it plans to allow custodial services in the commodity derivatives market to enable institutional participation.

Another proposal involves enabling mutual funds to undertake “side-pocketing” of debt and money market instruments in case of a credit event while ensuring fair treatment to all unit holders.

Side-pocketing is a mechanism to separate distressed, illiquid and hard-to-value assets from other more liquid assets in a portfolio. It prevents the distressed assets from damaging the returns generated from more liquid and better-performing assets.

As per one proposal to amend the insider trading norms, entities belonging to promoter group will need to make initial and continuous disclosure about their shareholdings and the subsequent share transactions exceeding Rs 10 lakh.

Currently, such disclosure requirements are mandatory for promoters, key management personnel and directors of a company, but there is no obligation on entities belonging to promoter groups.

Officials said SEBI is also of the view that an earlier proposed exercise for determining a uniform bond valuation methodology to be followed by all regulated entities across the financial sector may not be pursued.

Such an exercise was suggested by a Working Group on Development of Corporate Bond market in India, chaired by HR Khan.

However, the regulator will prescribe high-level principles to be followed uniformly across all mutual funds for strengthening the existing system of valuation of corporate bonds for mutual funds.

Regarding the pricing agencies, SEBI plans to evolve a supervisory and regulatory framework. In another key proposal, it plans to relax is the norms for clubbing of investment limits for foreign portfolio investors, officials said.

Currently, the FPIs are treated as part of the same investor group and the investment limits of all such entities are clubbed for deriving the investment limit as applicable to a single FPI, in case of the same set of ultimate beneficial owners investing through multiple entities.

Under the proposed norm, multiple entities having common ownership, directly or indirectly, of more than 50 percent would be treated as part of the same investor group and their investment limits would be clubbed.

Besides, the clubbing of investment limit would not be applicable in case of entities having common control, if the FPIs are appropriately regulated public retail funds.

Public retail funds typically include insurance companies, pension funds and mutual funds or unit trusts that are open for retail subscriptions.

Regarding the changes in the OFS framework, officials said the proposed changes have been formulated as per suggestions from the Department of Investment and Public Asset Management and other stakeholders.

The OFS norms will be eased to allow this mechanism for all companies with market cap of Rs 1,000 crore and above against a current limit of top 200 companies.

Also, if the seller fails to get sufficient demand from non-retail investors at or above the floor price on the first day of offer, then the seller may choose to cancel the officer post bidding in full (both retail and non-retail) on the first day itself and not proceed with the offer to retail investors on the second day.

Among other proposals, SEBI is looking at changes in norms requiring the filing of a fresh offer document in case of an OFS where there is a change in the number of shares offered for sale or the estimated issue size by more than 50 percent. Besides, norms would be eased for allocation in the net offer in fixed price issues in the SME segment.

Also, housing finance companies and systemically important non-bank financial companies may be exempted from disclosure of increase or decrease in shareholding due to encumbrance or release of the encumbrance of shares. A similar exemption already available to scheduled commercial banks and public financial institutions.

With regard to startups, the board will discuss renaming the “Institutional Trading Platform” that the regulator had created for such listings as “Innovators Growth Platform”, they said.

It has been proposed that 25 percent of pre-issue capital for at least two years should be with qualified institutional investors, a family trust with net worth of at least Rs 500 crore, well-regulated foreign investors and a new class of “accredited investors”.

The accredited investors can be an individual with a total gross income of Rs 50 lakh per annum and minimum liquid net worth of Rs 5 crore, or any body corporate with a net worth of Rs 25 crore, and they can hold up to 10 percent stake before listing.

The regulator is planning to create a separate category of “difficult to recover” cases for optimal utilisation of its resources.

However, SEBI can initiate or continue its prosecution proceedings against the defaulters even after such a segregation and recovery procedure can be reopened in case there is any change in prevailing parameters regarding the defaulter, officials said.