Sebi board likely to review MF fee structure, stock broker rules

Simplification in IPO documents, incentives for debt issuances also on agenda

The Securities and Exchange Board of India (Sebi) is set to review a series of key regulatory amendments at its board meeting on Wednesday. The agenda includes an overhaul of mutual fund (MF) fee structure, a revamp of stock broker regulations, new norms on pledging of shares in initial public offering (IPO)-bound companies, and simplification of offer documents, among others.

 

According to sources, the board will take up revisions to the three-decade-old Stock Brokers Regulations to ease compliance and align them with the Companies Act, 2013. The amendments are expected to introduce, for the first time, clear definitions of algorithmic trading, proprietary trading, and execution-only platforms. 

The board is also likely to consider changes to the total expense ratio (TER) — the fee charged to investors in mutual funds. Sebi had floated a fresh proposal on TER in October after an earlier plan in 2023 drew divergent views from the industry.

 

As part of the revised framework, the regulator is considering a steep reduction in permissible brokerage and transaction costs chargeable to mutual fund schemes — from 12 basis points (bps) to 2 bps for cash market trades, and from 5 bps to 1 bp for derivatives transactions. Sebi had also proposed lowering the upper limit on TERs for MF schemes by 15-20 bps.

 

Sources said several fund houses and intermediaries have opposed the proposed cuts, citing operational viability concerns.

 

Continuing its efforts to streamline the IPO process, the market regulator is expected to consider amendments to the Issue of Capital and Disclosure Requirements (ICDR) Regulations to address issues related to lock-in of pledged shares held by persons other than promoters. Depositories may also be directed to revise their frameworks to ensure such shares are appropriately treated as locked-in.

 

In another move to enhance disclosure clarity, Sebi may rationalise the offer document summary and remove the mandatory requirement for an abridged prospectus — a step aimed at helping investors better understand simplified versions of offer documents.

 

The board is also expected to review recommendations of a high-level committee on conflict-of-interest norms. The committee was constituted in March to propose an overhaul of disclosure requirements. The panel, chaired by former Chief Vigilance Commissioner Pratyush Sinha with Injeti Srinivas, former corporate affairs secretary and ex-IFSCA chairman, as vice-chairman, submitted its report in November.

 

Among its suggestions are wider disclosures of assets, liabilities, trading activities, and relevant relationships at key stages such as appointment and annual reviews.

 

People familiar with the matter said the board could also explore incentives for debt issuances and measures to ease dematerialisation of physical shares. Currently, incentives in debt issues are not permitted, but Sebi had proposed allowing higher coupon rates and discounts for select investors.

 

Emailed queries to Sebi remained unanswered at the time of going to the press. 

Up for discussion

• Review of 30-year old Stock Broker Regulations, inclusion of Algorithmic trading definition
• Revamp of total expense ratio structure in MFs, reduce charges
• Enabling framework for pledged shares to be treated as locked in, simplification of IPO offer documents
• Consider recommendations by the high-level committee for disclosures on conflict of interests
• Incentives in debt issues for select investors also on the cards