The Securities and Exchange Board of India (“SEBI”) vide PR No.22/2021 disseminated the decisions taken by the SEBI Board in its meeting held in Mumbai on June 29, 2021, a quick snapshot of which is as under:
|Review and Merger of SEBI (Issue and Listing of Debt Securities) Regulations, 2008 and SEBI (Non-Convertible Redeemable Preference Shares) Regulations, 2013 into a single Regulation – SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021
|Issuers other than unlisted REITs and InvITs who are in existence for less than three (3) years, have been facilitated to tap the bond market, subject to the following conditions: (i) issuance of their debt securities is made only on a private placement basis; (ii) the issue is made on the Electronic Book Provider (“EBP”) platform irrespective of the issue size; and; (iii) the issue is open for subscription only to QIBs.
|This shall enable Special Purpose Vehicles created for specific infrastructure purposes/ NBFCs/ listed REITs/ listed InvITs and other companies who propose to list debt securities purely on private placement basis but who do not have a three-year existence history, to list their debt securities issued on private placement basis.
|Parameters for identification of risk factors have been introduced to assist issuers in disclosing pertinent risk factors on risks intrinsic to the issuer as well as the instrument, other risk factors which may have an impact on the issue etc.
|This shall improve the quality of the disclosures for the investors to make an informed investment decision.
|The requirement to have a minimum rating of AA- for a public issuance of Non-Convertible Redeemable Preference Shares (“NCRPS”) has been done away with in requirement as is the case for a public issue of debt securities.
|This shall deepen the market by widening the pool of issuers who would be eligible to raise funds.
|The requirement of a minimum tenure of three years for a public issuance of NCRPS has been removed.
|This shall provide flexibility to the issuers to structure their issuance as per their resource requirement and raise funds through an issue of NCRPS.
|The restriction of not more than four issuances of debt securities in a year through a single shelf prospectus has been done away with.
|This shall enable issuers to raise funds quickly without filing a separate prospectus each time.
|The option for call and put has been introduced in case of debt securities issued on private placement basis.
|This shall provide greater flexibility to the issuers and investors of debt securities and NCRPS as well. Further, the period for exercise of call and put option has been brought down to twelve (12) months from twenty-four (24) months in order to provide increased flexibility, both to issuers and investors.
|Issuers who have cured the default in payment of interest / dividend / redemption amount to raise funds through non-convertible securities, have been permitted to file shelf prospectus post such curing of default provided they have cured the default at least thirty (30) days prior to filing the draft shelf prospectus.
|This shall have the effect of increased compliance levels, particularly in companies in regular need of funds.
|Minimum size of Rs. 100 crore has been done away with.
|This shall encourage public issuance of debt securities.
|The EBP platform has been made mandatory for issuance of eligible securities on private placement basis proposed to be listed amounting to INR 100 crore or above in a financial year.
|This shall aide transparency and improve price discovery.
|The provision of creation of charge on the assets and properties of the issuer has been harmonized with the Companies Act thus allowing issuer to have an option to create charge over its properties or assets (movable, immovable, tangible, intangible), shares or any interest thereon, of the issuer or its subsidiaries or its holding companies or its associate companies.
|This shall provide greater flexibility to the issuers for creation of charge.
|The requirement of abridged prospectus has been streamlined to around ten (10) pages from over fifty (50) pages.
|This shall enhance readability for the investors.
|In case an issuer wishes to roll over the debt securities the provision of e-voting has been introduced in addition to postal ballot to facilitate issuers to seamlessly obtain voting for passing the resolution.
|This shall encourage wider investor participation in the voting.
|Introduction of Framework For Accredited Investors in Securities Market
|Eligibility criteria for Accredited Investors who may be Individuals, HUFs, Family Trusts, Sole Proprietorships, Partnership Firms, Trusts and Body Corporates based on financial parameters and information as may be specified by SEBI.
|Accredited Investors are investors with reliable indicators of financial sophistication to participate in such investment opportunities, while maintaining the safeguards necessary for investor protection and public confidence in investing in sectors critical for the growth of the economy. So, introducing a framework for the regulation of “Accredited Investors” is a step in the right direction and also a timely move, considering the impact of COVID-19 which has necessitated responsible investing for reviving and strengthening the economy.
|Eligible subsidiaries of depositories and specified stock exchanges, and any other specified institutions to be recognized as Accreditation Agencies. Accreditation Agencies to grant accreditation status and issue Accreditation Certificate to Accredited Investor.
|Modalities of accreditation and procedure to avail benefits linked to accreditation.
|Accredited Investors shall have flexibility to participate in investment products with an investment amount lesser than the minimum amount mandated in the Alternative Investment Funds (AIF) Regulations and Portfolio Managers (PMS) Regulations.
|AIF for Accredited Investors where each investor invests minimum investment amount of Rs. 70 Crores may avail relaxation from regulatory requirements such as portfolio diversification norms, conditions for launch of schemes and extension of tenure of the AIF.
|Accredited Investors with minimum investment of Rs. 10 Crores with registered PMS provider, may avail relaxation from regulatory requirement with respect to investment in unlisted securities and can enter into bilaterally negotiated agreements with the PMS provider.
|Accredited Investors who are clients of Investment Advisers will have the flexibility to determine the limits and modes of fees payable to the Investment Adviser through bilaterally negotiated contractual terms.
|Review of Regulatory Provisions related to Independent Directors (“IDs”)
|Appointment/Re-appointment and Removal of IDs shall be through a special resolution of shareholders for all listed entities.
|The changes have been introduced to give more power to non-promoting shareholders of the Company.
The amendments with respect to appointing process and cooling-off period shall introduce additional transparency. Further, the amendments afford the companies greater flexibility in deciding remuneration which shall enable them to appoint the most suitable talent for their businesses.
Approval of related party transactions by only independent directors on the audit committee shall further strengthen the corporate governance framework.
Extending the requirement of undertaking D&O insurance to 1000 companies by market capitalisation shall surely comfort individuals of high integrity and calibre to make themselves available for being appointed as independent directors in listed companies. This would enable these directors to function fearlessly towards protection of shareholder’s interests thereby strengthening the corporate governance in these listed companies. It may be noted that these listed companies and their policies and governance standards serve as market precedents and guidelines for other listed companies and therefore we will see a trickle down effect of better governance and shareholder protection on these companies as well.
|The process to be followed by Nomination and Remuneration Committee (NRC), while selecting candidates for appointment as IDs, has been elaborated and made more transparent including enhanced disclosures regarding the skills required for appointment as an ID and how the proposed candidate fits into that skillset.
|The composition of NRC has been modified to include 2/3rd IDs instead of existing requirement of majority of IDs.
|Shareholder approval for appointment of all directors including IDs shall be taken at the next general meeting, or within three months of the appointment on the Board, whichever is earlier.
|A cooling off period of three years has been introduced for Key Managerial Personnel (and their relatives) or employees of the promoter group companies, for appointment as an ID.
|Relatives of employees of the company, its holding, subsidiary or associate company have been permitted to become IDs, without the requirement of a cooling off period, in line with Companies Act, 2013.
|The entire resignation letter of an ID shall be disclosed along with a list of her/his present directorships and membership in board committees.
|A cooling-off period of one year has been introduced for an ID transitioning to a whole-time director in the same company/ holding/ subsidiary/ associate company or any company belonging to the promoter group.
|At least 2/3rd of the members of the audit committee shall be independent directors and all related party transactions shall be approved by only Independent Directors on the Audit Committee.
|The requirement of undertaking Directors and Officers insurance has been extended to the top 1000 companies (by market capitalization).
|SEBI to make a reference to the Ministry of Corporate Affairs, for giving greater flexibility to companies while deciding the remuneration for all directors (including IDs), which may include profit linked commissions, sitting fees, ESOPs, etc., within the overall prescribed limit specified under Companies Act, 2013.
|Amendments to SEBI (Infrastructure Investment Trusts) Regulations, 2014 and
SEBI (Real Estate Investment Trusts) Regulations, 2014
|Introduction of minimum unit holders requirement for unlisted InvITs. The minimum number of unit holders, other than sponsor, its related parties and its associates shall be five together holding not less than 25% of the total unit capital of the InvIT.
Revision in minimum subscription and trading lot for publicly issued REITs and InvITs. The revised minimum application value to be within the range of INR 10,000-15,000 and the revised trading lot to be of one unit.
|The reduction in application value and trading lot for REITs and InvITs will enable greater retail participation in such instruments and shall therefore deepen the markets for InvITs. With the Government targeting several REITs/InvITs to monetise state & PSU assets, the amendment shall allow better market allocations.
|Permitting Resident Indian fund managers to be constituents of FPIs
|Proposal to amend the SEBI (Foreign Portfolio Investors) Regulations, 2019 approved to permit eligible Resident Indian Fund Managers (other than individuals) to be constituents of Foreign Portfolio Investors (FPIs). Such FPIs shall be investment funds approved by Central Board of Direct Taxes (CBDT) under Section 9A of the Income-Tax (IT) Act, 1961, read with the IT Rules, 1962.
|The amendments to bring the SEBI (FPI) Regulations, 2019 in line with the recent amendments in Section 9A of the IT Act, thereby facilitating Indian fund managers in managing investment funds incorporated/established/ registered outside India.
|Amendment to SEBI (Mutual Funds) Regulations, 1996
|Amendment to SEBI (Mutual Funds) Regulations, 1996, to provide for investment of a minimum amount as skin in the game in the Mutual Fund (MF) schemes by Asset Management Companies (AMCs) based on the risk associated with the scheme, instead of the current requirement of one percent of the amount raised in New Fund Offer or an amount of INR fifty lacs, whichever is less.
|The move shall introduce more accountability among the mutual fund players. By correlating the investment by AMCs with “risk associated with the scheme”, the result would be that passive funds shall attract lower investment limits whereas active funds shall have higher limits. The fact that the AMCs, depending on the risk matrix, would be required to invest a substantial amount in the scheme, their interests would be better aligned with those of the investors. This is surely a comforting change from investor’s perspective as fund houses shall have more skin in the game in schemes with higher risks.
|Amendment to SEBI (Credit Rating Agencies) Regulations, 1999
|SEBI (Credit Rating Agencies) Regulations amended to define a Credit Rating Agency (CRA) in terms of rating of securities that are listed or proposed to be listed on a recognized stock exchange, and to provide for an explanation specifying that ratings undertaken by a CRA under the respective guidelines of a financial sector regulator or authority shall be under the purview of the concerned financial sector regulator or authority
|The move towards increased regulatory insight shall strengthen the credit rating process which is a pro-investor move.
|Amendment to SEBI (Bankers to an Issue) Regulations, 1994
|SEBI approved the proposal for amending the SEBI (Bankers to an Issue) Regulations, 1994 with permitting such other banks, other than scheduled banks, as may be specified by SEBI from time to time, to register as a Banker to an Issue.
|The amendments shall provide easy access to investors to participate in public/rights issues by using various payment avenues.
|Amendments to the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015
|The maximum amount of reward has been increased from INR 1 crore at present, to INR 10 Crore.
|The changes have been proposed with a view to streamlining the process of reward payment and to enhance the quantum of reward under the informant mechanism.
|If the total reward payable to the informant is less than or equal to INR 1 Crore, then the reward may be granted by SEBI, after the final order is issued.
If the total reward payable to the informant is more than Rupees 1 Crore, then an interim reward not exceeding INR 1 Crore may be granted by SEBI, after the final order is issued. The remaining reward amount will be granted only upon receipt of the monetary sanctions amounting to at least twice the balance of the reward amount payable by SEBI.