Mumbai: The Securities and Exchange Board of India (Sebi) on Thursday approved norms to improve governance in mutual funds and credit rating agencies and deepen the securities markets. Sebi also did its bit to help tackle India’s Rs10 trillion stressed asset problem at a meeting of its board in Mumbai.

For both mutual funds and credit raters, the markets regulator proposed to restrict cross-holding. Thus, a sponsor of a mutual fund or its associates cannot hold more than 10% in any other asset management company or have a board seat.

This move clears the way for the listing of UTI Asset Management Co. Ltd, which has four public sector financial institutions holding an 18.24% stake each. Life Insurance Corp. of India, State Bank of India, Bank of Baroda and Punjab National Bank, the co-owners, all have their own fund houses.

Sebi chairman Ajay Tyagi said UTI would get a year to comply with these norms.

UTI’s chief executive officer Leo Puri did not answer calls seeking comment.

Similarly, the regulator has capped cross-holding in credit rating agencies at 10%. This means no credit rater can hold more than 10% in other raters and no entity can hold more than 10% each in different credit rating agencies. However, pension funds, mutual funds and insurance schemes have been exempted from the cross-holding threshold. To stem abrupt rating suspensions and withdrawals, a rating agency would be allowed to suspend ratings if it had been assessing the instrument for five years, or 50% of the tenure of the instrument. Net worth requirement for rating agencies has been raised five times to Rs25 crore.

“These norms will act as gatekeepers to ensure that serious players are operating as rating agencies and will also improve rating processes," said D. Ravishankar, founder director at Brickwork Ratings.

The regulator has also aligned quarterly earning disclosure and reporting norms for listed debt securities with listed equities.

The regulator approved norms for listing of securities receipts issued by asset reconstruction companies. This was initially proposed in the Union budget to improve capital flows into the securitization industry and help tackle the bad loan problem. Tyagi said detailed norms would be announced after consulting with the Reserve Bank of India.

“This is a positive move because it will make security receipts, which are held by banks, more liquid and lead to better price discovery in bad loan sales by lenders," said Siby Antony, managing director at Edelweiss Asset Reconstruction Company. “However, this move must be accompanied by broad-basing the definition of qualified institutional buyers to include distressed asset funds and alternative investment funds because banks will have (more) options to sell securities receipts."

Tyagi also said the contentious circular requiring listed firms to disclose defaults on any debt within a day was discussed, but the board could not come to a conclusion on the matter. The circular was first released in August and retracted on 30 September.

Sebi also approved amendments to the Stock Exchange and Clearing Corporation Regulations to allow all exchanges to offer trading in all segments such as commodities, equities, currency and debt from October 2018. Currently, equity and debt exchanges such as the National Stock Exchange of India and BSE are not allowed to offer a commodities trading platform. Similarly, Multi Commodity Exchange and other commodity exchanges cannot trade in equities.

“This decision will help participants in various markets to be part of 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," said Ashishkumar Chauhan, managing director and chief executive officer of BSE.

The Sebi board also expanded the list of eligible jurisdictions to grant registration to foreign portfolio investors, rationalize “fit and proper" criteria and simplify regulatory requirements such as allowing private banks or merchant banks to invest on their behalf.

The move is aimed at improving direct registrations and shunning the so-called participatory note route. Foreign investors had holdings worth $418.81 billion in Indian stocks at the end of 30 September. That accounted for 18% of India’s $2.3 trillion market capitalization.

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