Flexibility to markets: Sebi's new measures help both investors and issuers

The board of the market regulator, Securities and Exchange Board of India (Sebi), on Monday announced a range of changes to regulations. The regulator has been under pressure with accusations of a toxic work culture and allegations of conflict of interest against the chairperson. Neither subject was reportedly on the agenda. However, the regulator surprised market watchers by leaving the framework for futures and options (F&Os) unchanged at its board meeting but issued a circular on Tuesday, raising the entry barrier and making it costly to trade in equity derivatives.

The board introduced several changes such as the framework for the new proposed asset class for mutual funds and easier “lite” norms for funds running passive schemes. The focus seemed to be on facilitating the ease of doing business, a term that was used several times in the statement from the regulator. Many of the measures adopted had been discussed earlier in consultation papers. The board also agreed on fewer disclosures, much faster processes for rights issues, expanding the T+0 settlement, and an optional mechanism for block deals made under the T+0 settlement cycle. It increased the scope for prohibiting insider-trading regulations. Retail investors will be allowed to use a Unified Payments Interface block mechanism similar to the application supported by blocked amount (Asba) for primary issues.

Sebi’s F&O measures, announced on Tuesday and effective November 20, will ensure investor protection in an asset class where, according to the regulator’s recent research, retail investors have lost Rs 1.8 trillion in three years to March 2024, with just over 7 per cent individual investors making a profit.

The new asset class “investment strategy”, for example, is being placed under the exact framework discussed earlier with the intention of bridging the gap between conventional mutual funds and portfolio management services. By setting a minimum threshold of Rs 10 lakh, it will ensure that only investors with relative deep pockets and risk appetite can participate. It should help force unregistered schemes out of the market.

The MF Lite framework has also been discussed. It reduces net worth, track record, and profitability requirements for sponsors, making it easier for new players to start passively managed funds. Trustees will face fewer compliance burdens, and the approval process for launching passive schemes will be streamlined. This should boost competition and investment options for investors.

The period of processing a rights issue is being reduced to a maximum of 23 working days from the current average of 317. This will accelerate raising additional funds for listed concerns. Apart from easing several disclosure norms for listed entities, the detailed advertisement of results in media becomes optional. Sebi has also introduced a single filing system for listed entities to file relevant reports, documents, etc. on one exchange, which will be automatically disseminated at the other exchanges.

The time to release the outcomes of board meetings has been extended to three hours, instead of 30 minutes, if the meeting concludes after trading hours. An additional time of 72 hours, instead of 24 hours, will be given for disclosing litigation or disputes involving claims against the listed entity subject to maintaining such information in a structured digital database. Both these are pragmatic changes.

The definition of “connected person” has been expanded, which would increase the scope for regulations on prohibiting insider trading. It would bring within its ambit many more persons (such as a person sharing household or residence with a “connected person”, a firm or its partner or its employee in which a “connected person” is also a partner, etc), who are indirectly associated with the securities market through intermediaries, fiduciaries or being distant relatives of persons working in listed companies. It remains to be seen how this works since it may be too broad in scope.