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Markets regulator Sebi unveils key reforms to protect investors

Board approves ASBA-like facility for secondary market, sponsor-less AMCs

Sebi, Securities and Exchange Board of India

Sebi allowed hard underwriting for IPOs, a move that will allow for salvaging a share sale in case it fails to garner full subscription

Khushboo TiwariSamie Modak Mumbai

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The board of the Securities and Exchange of India (Sebi) on Wednesday approved far-reaching changes in the governance of mutual funds (MF), brokerages, and alternative investment funds (AIFs), including the creation of a Rs 33,000-crore backstop facility for debt MFs to prevent contagion from a market dislocation event.

To safeguard client funds lying with brokers, the regulator made ASBA (applications supported by blocked amount)-like facility optional for the secondary market and also approved daily upstreaming of client funds. As a result, investors can park their money directly with clearing corporations — circumventing brokers — and even earn interest on it.

Addressing a press conference, Sebi Chairperson Madhabi Puri Buch said: “Earlier, the regulator took steps to protect client securities and now we are protecting investors’ cash. This will ensure we have zero systemic risk. We cannot allow another Karvy-like episode in our markets.”

Buch, however, declined to comment on US-based short seller Hindenburg Research’s report on the Adani Group, saying the matter was sub-judice and investigations were underway. “We will comply with the Supreme Court’s directions in both letter and spirit,” she said.

Concerns were earlier raised that the ASBA-like facility could increase broking costs. Dismissing such fears, Buch said: “Similar concerns were raised when Sebi had introduced ASBA for the IPO market. This will help unbundled costs.”

The Sebi board gave its approval for setting up self-sponsored asset management companies (AMCs). To become a sponsor-free AMC, an entity must have positive liquid net worth and net profit of at least Rs 10 crore in each of the immediately preceding five years.

Sebi also changed regulations to provide more clarity on the roles of MF trustees, who will henceforth have to play a key role if there is a conflict between the unit holders and shareholders.
What’s new
  • More transparency in corporate disclosures; verification of market rumours
  • Domestic, global index providers required to register with Sebi
  • Framework for ESR rating to curb greenwashing
  • MF trustees directed to protect unit holders’ interest
  • Hard under–writing for IPOs
The regulator’s board brought index providers under its ambit. Any index where local investors park their money must register with Sebi. Buch there was no framework governing index providers and Sebi wanted to plug this gap. If global index providers such as MSCI or FTSE don’t register with the regulator, domestic asset managers will not be allowed to use them as benchmarks.

Further, Sebi has brought in mandatory assurance in environmental, social, and governance (ESG) disclosures through a set of 49 parameters with the introduction of the Business Responsibility and Sustainability Reporting (BRSR) Core. This will apply to the top 250 listed companies from financial year 2024-25 (FY25).

Sebi has also paved the way for setting up new sub-categories in ESG-themed MFs. A separate chapter will be added in the credit rating agency regulations to provide some leniency to ESG rating providers.

In an attempt to beef up corporate governance norms it has discouraged the practice of permanent board seats for directors, encouraged timely disclosure of material events, and nudged the top 100 companies – to begin with – to respond to news reports that appear in leading media agencies.

Sebi allowed hard underwriting for IPOs, a move that will allow for salvaging a share sale in case it fails to garner full subscription.

Tightening its hold on AIFs, the capital market watchdog has mandated valuation of their investment portfolio and appointment of an independent valuer. Further, all AIF schemes with a corpus of more than Rs 500 crore will have to dematerialise units. Sebi has also permitted AIFs to close existing schemes and transfer unliquidated investments to a new scheme on receiving consent from 75 per cent of investors by value.

Sebi’s board also mandated a certification requirement for the key investment team of the AIFs.

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First Published: Mar 29 2023 | 9:55 PM IST

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