SEBI Revolutionizes Financial Regulations | Strengthening Market Transparency

On June 27, 2024, the Securities and Exchange Board of India, the capital market regulator, introduced significant regulatory changes encompassing voluntary delisting regulations, and tailored rules for investment and holding companies. These decisions represent a substantial shift towards improving transparency and governance in India’s financial markets. The key highlights of the Press Release are as follows:

(a) SEBI prohibits unauthorized associations for ‘securities advice and claims’

The Board approved measures aimed at regulating associations between regulated entities and individuals/entities offering securities advice or making claims. Now, SEBI-regulated entities and agents are prohibited from associating directly or indirectly with individuals or entities providing securities advice, recommendations, or claims on returns or performance unless permitted by SEBI.

(b) SEBI grants disclosure exemptions to simplify operations for ‘Category I FPIs’

The Board has approved a proposal for exempting University Funds and University-related Endowments, registered or eligible as Category I FPI, from additional disclosure requirements as prescribed under SEBI’s August 24, 2023 circular, subject to certain specified conditions.

(c) Streamlining public issue process for debt securities and Non-Convertible Redeemable Preference Shares

The Board has approved a proposal to streamline the public issue process for debt securities and Non-Convertible Redeemable Preference Shares (NCRPS). The key changes include reducing the timelines for public comments on draft offer documents to one day for listed issuers and five days for others, and shortening the minimum subscription period to 2 working days.

Additionally, SEBI has mandated the use of UPI for individual investors for investments up to Rs 5 lakhs, aligning the procedure with that of specified securities.

(d) Enhanced operational flexibility and tenure restrictions for AIFs

The Board has approved measures to enhance operational flexibility for Alternative Investment Funds (AIFs). Category I and II AIFs can now borrow for up to 30 days to cover temporary shortfalls in investor drawdowns, with costs borne by the affected investors. Additionally, Large Value Funds for Accredited Investors (LVFs) are now restricted to a maximum tenure of five years, with any extensions requiring approval from two-thirds of unit holders.

(e) SEBI introduces performance evaluation framework for stock exchanges and related entities

The Board has approved minimum criteria for evaluating the performance of stock exchanges, clearing corporations, and depositories. External evaluators will assess these entities every three years, starting within 12 months of implementing this mechanism. The aim is to ensure compliance and enhance performance transparency in the financial markets.

(f) SEBI proposes to remove financial disincentives for MDs and Chief Technology Officers of MIIs

SEBI proposes to eliminate automatic financial disincentives imposed on Managing Directors (MD) and Chief Technology Officers (CTO) of Market Infrastructure Institutions (MIIs) following technical disasters. Advisory committees recommended this change, noting that these disincentives hinder recruiting and retaining qualified talent within MIIs.

(g) Revised eligibility criteria for entry/exit of stocks in derivatives segment

The Board has approved a revision in eligibility criteria for the entry and exit of stocks in the derivatives segment of exchanges, aiming to ensure investor protection. These criteria, updated for the first time since 2018, reflect changes in market dynamics. Stocks must complete at least six months in the derivatives segment before exit criteria apply.

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