Sebi unveils reforms for stock exchanges, foreign investors; to act on leaks at companies

Mumbai: In a slew of reforms, regulator Sebi on Thursday announced easier access norms for foreign investors, approved integration of stocks and commodities trading on a single exchange and capped cross-holdings in rating agencies as well as mutual funds to safeguard investors’ interest. Sebi also issued a stern warning to insiders at listed firms against leakage of key financial details and said it is probing a number of companies and other entities and no one, including auditors, would be spared for such wrongdoings and the insider trading norms would be strengthened if required. Besides, the Securities and Exchange Board of India (Sebi) allowed listing and trading of security receipts issued by ARCs (Asset Reconstruction Companies) to enhance capital flows and help deal with bad loans in banking industry, even as it deferred a decision on making it mandatory for listed firms to immediately inform investors about any loan defaults. Sebi also relaxed its regulations for real estate and infra investment trusts, besides providing more avenues for listed firms to meet minimum 25 percent public shareholding. Sebi also said it will float a new consultation paper for changes in rules for investment advisors, requiring clear segregation between two activities of an entity – that is providing investment advise and distribution of products. Announcing the decisions discussed and approved by its board here today, Sebi Chairman Ajay Tyagi said further discussions are needed on the loan default disclosure norms, which were originally to come in force in October but had to be deferred amid reservations on some clauses from banks and from some other quarters. [caption id=“attachment_4279131” align=“alignleft” width=“380”] Sebi logo. Reuters.[/caption] On another long-awaited proposal for overhaul of corporate governance norms as per suggestions of a panel headed by eminent banker Uday Kotak, Tyagi said it would be taken up at the next board meeting as the regulator does not want to take a decision in a hurry. The decision to allow all exchanges trading facility in stocks as well as commodities was welcomed by the market participants, even as those from the banking industry and the companies in financial distress heaved a sigh of relief from deferment of decision on immediate loan default disclosure. Without divulging what transpired in the board meeting, where a revised proposal was presented with some relaxations on disclosure about certain kinds of loans, Tyagi said, “There was discussion on this subject.” “In August 2017 when we issued it (the first proposal), it was on our own volition. No one really asked us to issue it. This issue was discussed at length but it requires further discussion so it has been deferred by the board,” he said. On convergence of stock and commodity exchanges, Tyagi said all bourses will be able to provide trading in all permitted products from 1 October, 2018 – three years after the merger of erstwhile commodities regulator FMC with Sebi. Welcoming the Sebi decision, BSE’s CEO Ashishkumar Chauhan said this will help participants in various markets get a a highly regulated, safer, more transparent trading, clearing and settlement framework when implemented fully. “BSE has geared up itself for long to provide these facilities to its more than 3.71 crore registered investors,” he said. Angel Broking’s Amar Singh said the convergence will permit exchanges to cross-list products, allowing NSE and BSE to list commodities while MCX and NCDEX will be allowed to list equities and equity derivatives. “This will reduce the KYC burden for brokers and customers. Further, the move is expected to broaden the markets and this key reform will go a long way in developing the Indian financial markets in years to come,” he said. On REITs, Sebi said these trusts can now invest at least 50 percent stake in holding companies. Sebi had notified REIT/InVIT Regulations in 2014 for listing and trading of such trusts, which are very popular in some advanced markets. While there have been a few InVITs that have hit the market, the response for REITs has not been encouraging so far in India. In a green initiative, Sebi also allowed companies to use electronic mode of communication for informing investors about refund orders, share allotments and other such messages. As per present requirements, refund orders, allotment letters and share certificates are dispatched by way of registered post or certificate of posting. In another decision, Sebi said that cross-holding among credit rating agencies will be capped at 10 percent and minimum networth requirement must be increased to Rs 25 crore. Further, it has proposed slew of measures for tightening the financial and operational eligibility of their promoters. Besides, it has suggested greater disclosure requirements for CRAs. The proposed norms will impact global rating agencies like S&P, Moodys and Fitch which have significant holdings in domestic agencies besides their direct presence. To avoid any conflict of interest, Sebi also decided to put a 10 percent cross-shareholding cap in mutual funds. This will have an impact on the shareholding pattern of UTI Asset Management Company (AMC), requiring its promoters to lower their stake to 10 percent or below in next one year. For foreign portfolio investors, Sebi decided to relax entry norms, including by expanding the eligible jurisdictions for registration by including countries with diplomatic ties. Besides, the regulator will rationalise “fit and proper” criteria for FPIs and simplify the broad-based requirements for such investors.