Introduction
On 27.06.2024, at its 206th meeting[i], the Securities and Exchange Board of India (‘SEBI’) approved several significant measures to enhance regulatory frameworks, protect investors, and facilitate ease of doing business.
The following are the detailed highlights of SEBI’s Board Meeting:
1. Regulation of Associations Providing Unregistered Advice
To address risks associated with financial influencers (‘finfluencers’), SEBI has approved proposals to restrict SEBI-regulated entities from associating with unregistered entities providing securities advice. Registered entities are prohibited from engaging with unregistered investment advisors.
Exceptions are provided for entities exclusively engaged in investor education and specified digital platforms with mechanisms to prevent misuse of unauthorised advice.
This regulation significantly aims to curb the influence of finfluencers, thereby safeguarding investors from misleading advice and unauthorised financial recommendations. This move comes in light of recent allegations against certain finfluencers for stock manipulation through the spread of false information to influence the buying or selling of shares.
2. Amendments to Delisting Regulations and Counter-Offer Mechanisms
SEBI has introduced a fixed-price process as an alternative to the reverse book building (‘RBB’) process for delisting frequently traded shares. This process guarantees a minimum 15% premium over the floor price.
Adjusted book value is introduced as an additional parameter for determining the floor price for frequently and infrequently traded shares of companies under the delisting framework, except for public sector undertakings.
The counter-offer price shall not be less than the higher of (i) the volume weighted average price (‘VWAP’) of the shares tendered/offered under the RBB process and (ii) the indicative price, if any, offered by the acquirer.
Modifications in the counter-offer mechanism, reducing the threshold for making a counter-offer from 90% to 75%, provided at least 50% of public shareholding has been tendered.
Additionally, SEBI has enabled a new delisting framework for listed investment holding companies (IHC) through schemes of arrangement, ensuring fair value distribution to shareholders and providing flexibility in managing asset distributions.
3. Easing Business for Foreign Portfolio Investors (‘FPIs’)
SEBI has approved exemptions for university funds and university-related endowments registered or eligible to be registered as Category-I FPIs from additional disclosure requirements, subject to conditions related to their assets under management (AUM) and compliance with tax regulations in their home jurisdictions.
This exemption not only simplifies compliance but also attracts more foreign investment and aids educational institutions in diversifying their investment portfolios.
4. Streamlining Public Issue Processes
SEBI has streamlined the public issue processes for debt securities and non-convertible redeemable preference shares (NCRPS) to expedite fund access for issuers.
Flexibility in advertisement modes, allowing for electronic advertisements at the issuer’s discretion, along with mandatory newspaper advertisements featuring a QR code and link. Also, it mandates a unified payments interface (UPI) for individual investments up to Rs 5 lakhs.
This will enhance market efficiency and accessibility, simplifying the public issue process and encouraging greater investor participation.
5. Rationalisation of Disclosure Requirements for Non-Convertible Securities
To reduce regulatory burdens, SEBI has eliminated the requirement to disclose promoters’ permanent account numbers (PAN) and personal addresses in offer documents for non-convertible securities.
Furthermore, SEBI has aligned disclosure norms for the utilisation of issue proceeds with existing regulations under the issue of capital and disclosure requirements framework.
6. Facilitating business for infrastructure investment trusts (‘InvITs’) and real estate investment trusts (‘REITs’)
SEBI has approved several measures, including shorter notice periods for unitholder meetings, quarterly reporting of investor complaints, and electronic record maintenance.
Reduction in trading lot sizes for privately placed InvITs to Rs. 25 Lakhs.
Revision of the timeline for payment of distributions to five working days from the record date.
This can promote greater efficiency, transparency, and investor confidence in InvITs and REITs.
7. Guidelines for Borrowing by Category-I and II alternative investment funds (‘AIFs’)
SEBI now allows Category-I and II AIFs to borrow temporarily (up to 30 days) to cover shortfalls in investor contributions. Borrowing costs are charged to the responsible investor, and there is a mandatory cooling-off period between consecutive borrowings.
This can enhance AIFs' operational flexibility and provide clarity and protection for investors in large value funds (LVFs).
8. Cybersecurity and Cyber Resilience Framework (‘CSCRF’)
Implement a graded framework based on entity size and operations, with compliance deadlines set for 2025. The framework will focus on data classification, security operations, and supply chain risk mitigation.
CSRF aims to help entities anticipate, withstand, contain, recover, and evolve in response to cyber threats, enhancing overall security.
9. Other important highlights
SEBI has introduced an optional mechanism to enhance investor confidence in interactions with registered Investment Advisers (IAs) and research analysts (RAs). This mechanism will facilitate fee collection directly through a closed ecosystem, distinguishing registered professionals from unregistered entities.
Moreover, SEBI has also approved the establishment of comprehensive parameters for the external evaluation of market infrastructure institutions (MIIs), including stock exchanges, clearing corporations, and depositories. These evaluations aim to ensure that regulatory standards are adhered to and will also enhance operational efficiencies.
Conclusion
These regulatory changes aim to enhance transparency, safeguard investors, and boost operational efficiency across financial sectors. SEBI is strengthening the regulatory landscape by addressing critical issues such as restricting unregistered finfluencers, reforming delisting processes, streamlining public issue procedures, and implementing a comprehensive cybersecurity framework. These measures are designed to secure a more efficient market environment, promote informed investing, and protect investor interests.
Attaching the SEBI press release for ready reference:
End Note
[i] SEBI Press Release No. 12 /2024; dated 27.06.2024.
Authored by Priyavansh Kaushik, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion
AUTHORED BY
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