The Securities and Exchange Board of India (SEBI) has announced several significant changes in regulations that aim to bolster market integrity and enhance investor participation. The board's latest decisions, made on Tuesday, focus on improving surveillance mechanisms within asset management companies (AMCs), adjusting norms for non-convertible debentures (NCDs), and streamlining investment regulations for non-resident investors.
1. Strengthened Surveillance for AMCs
SEBI has mandated asset management companies to implement an “institutional mechanism” designed to detect and deter market abuses such as front-running, insider trading, and misuse of sensitive information. The new regulations will require AMCs to establish:
- Enhanced Surveillance Systems: To monitor and identify potential misconduct.
- Internal Control Procedures: To ensure adherence to regulations and internal policies.
- Escalation Processes: To address identified issues and escalate them appropriately.
This mechanism will be effective once AMCs have fully implemented it. Notably, SEBI has also exempted AMCs from the requirement to record face-to-face communications during market hours, which includes interactions that occur out of the office.
2. Adjustments to Non-Convertible Debentures (NCDs)
To increase non-institutional investor participation in the bond market, SEBI has approved:
- Reduced Face Value for NCDs: Issuers can now offer NCDs through private placements with a reduced face value of ₹10,000, down from the previous higher minimums.
- Merchant Banker Requirement: Issuers will need to appoint a merchant banker to assist with the private placement.
- Simplified Offer Document: Issuers with listed outstanding non-convertible securities can provide audited financials through a web-link or QR code in the offer document, rather than including extensive details.
These changes are expected to make bond investments more accessible to a broader range of investors.
3. Enhanced Flexibility for Foreign Portfolio Investors (FPIs)
SEBI has introduced a new framework to allow increased contributions from non-resident Indians (NRIs), overseas citizens of India (OCIs), and resident individuals (RIs) in FPIs based in International Financial Services Centres (IFSCs) in India. Key points include:
- 100% Contribution Limit: FPIs can have full contributions from these foreign investors, subject to providing PAN cards or other identification documents.
- Disclosure Requirements: FPIs must submit documents proving the economic interest and identity of their NRI/OCI/RI constituents.
4. Revisions to Mutual Fund Regulations
SEBI has amended the SEBI (Mutual Funds) Regulations, 1996, to allow equity passive schemes to align their exposure with the weightage of constituents in the underlying index, with an overall cap of 35% on investments in sponsor group companies. This aims to create a level playing field and enhance transparency in index-based investments.
5. New Options for Venture Capital Funds (VCFs)
To address the challenges faced by venture capital funds (VCFs) that were registered under previous regulations and are struggling to liquidate investments within the scheme’s tenure, SEBI has approved a proposal to allow these VCFs to migrate to Alternative Investment Fund (AIF) Regulations. This migration will provide VCFs with additional facilities to manage unliquidated investments more effectively.
Conclusion
SEBI’s latest regulatory updates reflect a commitment to enhancing market transparency, protecting investor interests, and encouraging broader participation in both the bond and equity markets. By strengthening surveillance mechanisms for AMCs, facilitating easier access to NCDs for retail investors, and offering more flexible investment options for NRIs and venture capital funds, SEBI is taking proactive steps to improve the functioning and integrity of India’s financial markets.