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Sebi's new rules and clarifications will aid market operations

The Securities and Exchange Board of India (Sebi) last week made significant changes to regulations at its board meeting. Regulations for voluntary delisting were relaxed, the framework for the entry and exit of futures and options (F&Os) was changed, and the code of conduct of “finfluencers” was tightened. The “Additional Disclosure Framework” for certain categories of foreign portfolio investors (FPIs) was also eased.
 

Companies that wish to delist may use an alternative to reverse book building (RBB) in the newly introduced “fixed price process”. A fixed price offer must be at least at a 15 per cent premium over the floor price as determined under delisting regulations. The determination of the floor price may include adjusted book value as an additional parameter.
 

If RBB is chosen, the threshold for a counter-offer is lowered from the earlier 90 per cent to 75 per cent, provided at least 50 per cent of public shareholding is tendered. The counter-offer price will not be lower than the volume-weighted average price tendered/offered under RBB, and the indicative price, if any, offered by the acquirer. Delisting would be successful if the post-offer aggregate shareholding of the acquirer hits 90 per cent.
 

Listed investment holding companies (IHCs) may be delisted through a scheme of arrangement by way of selective capital reduction. A listed IHC may transfer underlying equity shares held by it in other listed companies proportionately to public shareholders and also make proportionate cash payments against other assets.
 

University funds and university-related endowments, which may be eligible to register as Category-I FPIs, will be exempt from additional disclosure requirements prescribed under the regulator’s August 24, 2023, circular, provided the India equity assets under management (AUM) are less than 25 per cent of global AUM, global AUM are over Rs 10,000 crore equivalent, and the entity is a non-profit.
 

The eligibility criteria for the entry and exit of stocks in derivatives have been revised for the first time since 2018. In order to qualify for entry, a stock must be among the top 500, with a median quarter-sigma order of at least Rs 75 lakh in the last six months, a market wide position limit of at least Rs 1,500 crore, and an average daily delivery value of at least Rs 35 crore. For exit, at least 15 per cent of active trading members or 200 trading members (whichever is lower) must have traded any F&O contract in the last month, with an average daily turnover of Rs 75 crore and an average daily notional open interest of at least Rs 500 crore. The exit criteria will apply only to stocks which have been in F&O for six months.
 

The “finfluencer” code prohibits Sebi-regulated entities and their agents from having any association directly or indirectly with them (finfluencers), or any transactions involving money, client referral, interaction of information technology systems, etc. However, association is allowed if the persons are exclusively engaged in investor education and do not provide advice or recommendations, or claim returns or performances, and they are working on platforms where curative corrections are possible.
 

Sebi also eased rules for listing non-convertible redeemable preference shares and approved the concept of a third-party evaluation of market infrastructure institutions every three years. It has agreed that there will not be an automatic penalty on stock exchanges’ managing directors and chief technical officers over technical glitches. Taken together, the changes and clarifications should ease trading, and promote the regulator’s objectives of creating and sustaining a vibrant financial market while maintaining a level playing field.