The Securities and Exchange Board of India (Sebi) has announced several reforms to make the markets more efficient and transparent. These include lower costs for mutual fund investors and relief for foreign portfolio investors (FPIs). Mint gives the low-down on the Sebi reforms.

What did Sebi decide in its board meeting?

Sebi’s announcements were aimed at making the capital markets ecosystem more efficient and attractive for participants. The board took steps to reduce transaction costs, improve liquidity, increase market participation, improve capital allocation, penalize fraudulent activities and protect small investors, besides having a more efficient price discovery system. Analysts said that permitting foreign entities in the commodity derivatives market will not only help increase market participation, but could also lead to more innovation and increase liquidity.

How will it make mutual funds cheaper for investors?

Sebi said all MF commission and expenses must be paid from the scheme and that the industry must adopt a full-trail model of commission in all schemes without paying any upfront commission. Trail commissions are payments earned by distributors as long as investors stay invested in the scheme. Sebi has capped the total expense ratio (TER) for equity-oriented mutual funds (close-ended and interval schemes) at 1.25% and 1% for other schemes. It has allowed an extra 30 basis points for selling in beyond top 30 cities. One basis point is one-hundredth of a percentage point. The TER cap for fund of funds will be 2.25% for equity-oriented schemes, 2% for others.

Is there relief for FPIs?

Sebi has approved new know-your-customer norms and eligibility terms for FPIs, which were suggested by a panel led by former RBI deputy governor H.R. Khan. A revised circular on this will be released soon.

What are the key decisions for primary markets?

Sebi has cut the time period for listing of shares after an initial public offering (IPO) to three days from six. This will free up locked investor funds faster. According to Sebi, early listing and trading of shares will benefit both issuers and investors: issuers will have faster access to the capital raised, thereby enhancing the ease of doing business, and investors will have early liquidity. Unified Payments Interface has been introduced as a payment option for retail investors in IPOs.

What did Sebi say on large corporate borrowings?

Sebi has approved a framework for enhanced market borrowings by large firms (outstanding borrowing of 100 crore or more), which will come into effect from 1 April 2019 and require firms to raise 25% of their incremental borrowings from the bond market. Any firm, except a scheduled commercial bank, will be called a large company. Such borrowings exclude external commercial borrowings and inter-corporate borrowings between a parent and subsidiaries.

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