In the last couple of years, SEBI board meetings are becoming a key forum for important regulatory decisions. The last SEBI board meeting on 21st August made important shifts in 4 key areas.
Simplifying FPI investments
That was perhaps the theme of the Board meet on August 21st. SEBI has initiated simpler on-boarding process, compliance requirement and documents to be submitted. The number of FPI categories is also being shrunk from 3 to 2 to make it more rational. Now all central banks can register as FIIs even if they are not members of the BIS. In addition the entities that are established and run out of the IFSC, Gujarat will be deemed to have met FPI criteria automatically. In a major shift, the SEBI has allowed FPIs in off-market transfers of shares that are illiquid or unlisted.
Firstly, there has been no further clarity on the buyback tax that was introduced in the July budget. But the SEBI has given clarification on the standalone vs consolidated issue where L&T buyback had been stalled. The regulator has retained the maximum debt/equity ratio at 2:1 based on standalone and on a consolidated basis. The only exception will be where the subsidiaries are NBFCs or HFCs and are regulated RBI. Such subsidiaries will have to limit their debt / equity ratio to a maximum of 6:1.
Credit ratings and MFs
These two segments have been in the middle of a major controversy in the last one year since the IL&FS default. Now credit rating agencies will have the explicit authority to call for any data on past or future loans about the rated company either from the company being rated or even from statutory agencies. The idea is to enable the CRAs to have meaningful and timely information to warn on credit downgrades. SEBI also proposed amendments to the Mutual Fund regulations. Now mutual funds will be given flexibility to invest only 10% of their corpus in unlisted NCDs. However, the condition is that these NCDs must have simple structures. Also, such unlisted instruments must be rated and secured with respect to timely coupon payments. The implementation will happen in phased manner by mid-2020.
SEBI has also issued a consultative paper on amendments to the Insider Trading Regulations. Now informants will be given a separate channel to report such insider trades with adequate proof and documentation. A separate division at SEBI will be responsible for protection of informant confidentiality. SEBI has also come out with a reward scheme for such cases where the total disgorgement is more than Rs.1 crore. The payout will be 10% and shall be paid out of the IPEF! ©