The Securities and Exchange Board of India (Sebi) on Wednesday in the full board meet before the interim budget will tackle items which will ease the life for market participant. Sebi is leaning mostly towards easing out hurdles for products that are yet to take off and do its bit on helping mutual funds in handling future liquidity crisis events. Here is a quick look on what is expected.
Common custodian for equity and commodities
Institutional participants that is mutual funds and foreign institutional investors were unable to invest in commodity derivatives due to lack of custodians. Sebi in the board meet will allow custodians of securities to also track and be custodians of commodities too. This according to the regulator will be a cost-effective way to boost participation of institutional investors in the commodity market. This is also less complex and preferred by institutions, a Sebi official said on condition of anonymity.
Sebi had first proposed a separate listing platform for startup or new age companies in 2015 but three and half years later not a single has chosen to list on this platform. Sebi in June this year initiated a review under an industry panel. Sebi is likely to adopt the entire set of the panel recommendations submitted in October. A new platform called as “innovators growth platform" is in the offing. In order to be eligible for listing on this platform - 25% of the pre-issue capital should have been held by Qualified Institutional Buyers. Sebi will also reduce the minimum trading lot size from ₹ 2 lakh from the existing ₹ 10 lakh. The minimum number of allottees will be revised to 50 from the existing 200.
Derisking liquid funds
Mutual funds MFs will be allowed so-called ‘side-pocketing’ where liquid schemes separate their risky securities from the rest. This will be based on major credit events at issuer level such as impeding default. The enabling provision will be optional for mutual funds and would need to be approved by the trustees and regularly monitored for recovery of affected assets
Relaxing OFS framework
Sebi will relax or rather expand the Offer for Sale (OFS) framework to aid the government in the divestment process. The current norms will be expanded by allowing companies with more than ₹ 1,000 crore of market capitalization to raise funds via this route currently it is allowed only for top 200 companies according to m-cap.
Clubbing FPI limits
Currently, if FPIs have the same ultimate beneficiary, they are treated as part of the same investor group and the investment limits are clubbed.
Sebi is set to relax this by clubbing investment limits only if more than 50% of funds have common ownership with multiple entities. The clubbing will also not be applicable for well-regulated public retail funds such as insurance companies, pension funds and mutual funds.
Reduced disclosures for HFCs and NBFCs
The regulator will spare non-banking financial companies (NBFCs) from having to disclose changes in shareholding due to encumbered or pledged shares. The step is significant since mutual funds have increasingly started lending to group companies of NBFCs and home finance companies (HFCs) against share pledges.
Difficult to recover assets
Sebi post the adjudicating process devotes a considerable amount of time to recover assets. But in certain cases the exercise proves futile due to lack of known addresses or considerable assets to attach. For optimal usage of its resources the regulator has decided to create a new category ‘difficult to recover’. Cases will be put in that category after exhausting all options to recover penalties.