Sebi likely to finalise regulations on consent, new power

The regulator to also announce REIT regulations, scrap IPO grading at its board meeting

Market regulator Securities and Exchange Board of India (Sebi) will held a board meeting tomorrow to finalise three new regulations on settling disputes through the consent mechanism, search and seizure procedure and real estate investment trusts (REITs), sources close to Sebi have said.

The regulator is also likely to make grading of initial public offers (IPO) voluntary.

The regulator had announced draft regulations on REITs and consent settlements in October, while that on search and seizure procedure in November.

Sebi has taken into account the public comments and feedback it has gathered in these three issues and will finalise the regulations after discussing with its board members tomorrow, said a source.

Sebi had issued draft Sebi (Settlement of Administrative and Civil Proceedings) Regulations, 2013--for settling disputes under the so-called consent mechanism. Under the consent mechanism, Sebi settles charges against violators without admission or denial of guilt, for a penalty or market ban or both.

The regulations that Sebi had proposed were in line with the consent circular it had issued in May 2012, where it had decided to keep serious offenses like insider trading and front running out of the ambit of consent settlement.

The consent process had attained legal sanity when an ordinance was promulgated by the president of India in October to give Sebi more powers.

The ordinance also gave Sebi the powers to conduct search and seizure operations to enable it to conduct investigations more effectively. The regulator in November had proposed a for 'search and seizure' operations.

These new power allow Sebi to enter and search any building, vessel or aircraft, break open a lock or door, search any suspicious person and record statement under oath and also seizure any documents. As a procedure, the Sebi chairman has to authorize a search and search operation to an investigating officer after he is convinced that it is necessary by issuing a warrant of authority in writing.

Meanwhile, the Sebi board is also set to clear the regulations on REITs, which could potentially open a new liquidity stream for the real estate sector. The has proposed an IPO-like framework for raising money through REITs.

REIT is a financial instrument that invests pooled money into income-generating real estate assets.

Sebi has proposed a minimum initial offer size of Rs 250 crore and the minimum public float of 25%. The draft regulations had also proposed a minimum subscription ticket size of Rs 2 lakh, to attract only high networth individuals.

Also, after over seven years of introduction of the concept of IPO grading it is set to become voluntary. Sebi had made it mandatory for companies to obtain an IPO grade from at least one credit rating agency for all offer documents filed on or after May 1, 2007.

However, following representations from various investment bankers and investor forums on the inefficiencies of IPO grading, the regulator has decided not to force it on to issuers.