SEBI Board in its meeting approved new norms for buyback, creating a single SRO for mutual fund distributors and allow AMCs and distributors access to stock exchanges
Market regulator Securities and Exchange Board of India (SEBI) on Tuesday approved setting up of a single self-regulatory organisation (SRO) for mutual fund (MF) distributors while allowing asset management companies (AMCs) to trade directly in the debt segments of exchanges.
The SEBI Board, which met today in Mumbai, said, “...in order to facilitate the recognition of single SRO for distributors of mutual fund products and to avoid delay, it has been decided to have a cut off time for accepting applications for being recognised as SRO.”
The Board also approved AMCs managing schemes of mutual funds to take membership of debt segment of stock exchanges under 'proprietary trading member' (PTM) category. However, SEBI said, this (the membership) will be only to undertake trades directly on behalf of such schemes managed by the AMCs.
Appointment of custodian for mutual funds from the same group
Presently, mutual funds are not allowed to appoint a custodian belonging to the same group, if the sponsor of the mutual fund or its associates hold 50% or more of the voting rights of the share capital of such a custodian or where 50% or more of the directors of the custodian represent the interests of the sponsor or its associates.
The Board has decided that the custodian in which the sponsor of a mutual fund or its associates are holding 50% or more of the voting rights of the share capital of the custodian, would be allowed to act as custodian subject to fulfilling the following conditions...
(a) the sponsor should have net worth of at least Rs20,000 crore at all points of time,
(b) 50% or more of the directors of the custodian shall be those who do not represent the interests of the sponsor or its associates,
(c) neither the custodian nor the asset management company of a mutual fund shall be a subsidiary of each other,
(d) no person shall be a director of both the custodian and the asset management company of a mutual fund and
(e) the custodian and the asset management company of a mutual fund shall sign an undertaking that they will act independently of each other in their dealings with the schemes.
Membership to exchanges for MF distributors
SEBI Board decided to allow mutual fund distributors to take limited purpose membership of stock exchange with lesser financial and compliance burden to use infrastructure of the exchanges for distribution and redemption of mutual fund units.
To reduce the financial and compliance burden on these limited purpose members requirements such as SEBI registration, compliance as member of a stock exchange, paid up capital and base minimum capital would not be applicable. However, stock exchanges may prescribe suitable eligibility criteria in this regard including net worth requirements, membership fee etc. This limited purpose membership would be granted based on AMFI Registration Number (ARN), granted to mutual fund distributor by Association of Mutual Funds in India (AMFI).
Further to address the possible risk of default by these limited purpose members, they will not be allowed to handle pay in and pay out of funds as well as units on behalf of investor. Pay in and pay out of funds and units would be directly from or to the account of the investors, SEBI said.
Companies to achieve minimum 50% of target amount under buyback
SEBI Board has increased the mandatory minimum buyback to 50% from 25% of the amount earmarked for this purpose. If the company fails in the mandatory buyback of 50% of the target amount, then SEBI said it would forfeit the amount in the escrow account to a maximum of 2.5% of amount earmarked. Companies will have to create an escrow account with an amount of at least 25% of the money earmarked for buyback. The maximum buyback period is also reduced to six months from 12 months. Here are the new norms for buyback...
(i) The mandatory minimum buy-back has been increased to 50% of the amount earmarked for the buy-back, as against existing 25%, failing which amount in the escrow account would be forfeited subject to a maximum of 2.5% of the total amount earmarked.
(ii) The maximum buy-back period has been reduced to six months from 12 months.
(iii) The companies shall create an escrow account towards security for performance with an amount equivalent to at least 25% of the amount earmarked for buy-back.
(iv)The company shall not raise further capital for a period of one year from the closure of the buy-back except in discharge of subsisting obligations as against the existing six months.
(v) The company shall not make another buy-back offer within a period of one year from the date of closure of the preceding offer.
(vi)The disclosure requirements have been rationalized requiring disclosure of the shares bought back on a cumulative basis on the website of the company and the stock exchange, only on a daily basis instead of the current requirement of disclosure on daily, fortnightly and monthly basis.
(vii) The companies can buy-back 15% or more of capital (paid-up capital and free reserves) only by way of a tender offer.
(viii) Procedure for buy-back of physical shares (odd-lot) has been modified which includes creation of separate window in the trading system for tendering the shares, requirement of PAN/Aadhaar for verification, etc.
(ix) The companies are permitted to extinguish shares bought back during the month, within fifteen days of the succeeding month subject to the last extinguishment within seven days of the completion of the offer.
(x) The promoters of the company shall not execute any transaction, either on-market or off-market, during the buy-back period.
New norms for angel investors
Following Budget announcement, SEBI in its Board meeting provided a framework for registration and regulation of angel pools under a sub-category ‘Angel Funds’ under Category I- Venture Capital Funds. Here are the features of this new amendment...
• ‘Angel Funds’ shall be included in the definition of “Venture Capital Funds” under the
• SEBI (Alternative Investment Funds) Regulations, 2012.
• Individual angel investors shall be required to have early stage investment experience/ experience as a serial entrepreneur/ be a senior management professional with 10 years’ experience. They shall also be required to have net tangible assets of at least Rs2 crore. Corporate angel investors shall be required to have Rs10 crore net worth or be a registered AIF/VCF.
• Angel Funds shall have a corpus of at least Rs10 crore (as against Rs20 crore for other AIFs) and minimum investment by an investor shall be Rs25 lakh (may be accepted over a period of maximum three years) as against Rs1 crore for other AIFs. Further, the continuing interest by sponsor/manager in the Angel Fund shall be not less than 2.5% of the corpus or Rs50 lakh, whichever is lesser.
• For ensuring investments are genuine angel investments, angel funds shall invest only in investee companies which:
o are incorporated in India and are not more than three years old; and
o have a turnover not exceeding Rs25 crore; and
o are unlisted, and
o are not promoted, sponsored or related to an industrial group whose group turnover is in excess of Rs300 crore, and
o has no family connection with the investors proposing to invest in the company.
• Further, investment in an investee company by an angel fund shall be not less than Rs50 lakh and not more than Rs5 crore and shall be required to be held for a period of at least three years.
Listing of start-ups and SMEs without an IPO
Lack of exit opportunities for existing investors and restricted access to new investors is one of the problems faced by start-ups and small and medium enterprises (SMEs). With a view to provide easier exit options for informed investors like angel investors, venture capital funds (VCFs) and private equities (PE) funds to provide better visibility, wider investor base and greater fund raising capabilities to such companies, the Board approved the proposal to amend the SEBI (ICDR) Regulations to permit listing of start-ups and SMEs in Institutional Trading platform (ITP) without having to make an initial public offering (IPO).
Such companies eligible to be listed on this “Institutional Trading Platform” shall be accessible for investment to the informed investors only. Therefore, the minimum amount for trading or investment on the ITP will be Rs10 lakh. These companies shall be exempted from the requirements of rule 19(2)(b) of SC(R)R 1957 under which companies have to offer up to 25% of its shareholding to public through an offer document in order to get listed. Therefore, the listing can be done without an IPO and the expenses associated with it. While such companies are listed on the ITP they will not be permitted to raise capital though they can continue to make private placements, SEBI said.
Listing on ITP by start-Ups and SMEs is expected to offer their existing investors better chances to find alternate buyers than if they search using their own network in the investment community. Standardized norms of entry for companies, eligibility criteria, continuous disclosure requirements, simplified exit rules and corporate governance norms will be prescribed, the market regulator said in a statement.
According to the new norms, an investment beyond 10% will be considered a foreign direct investment (FDI). Any investment by investors must not be less than Rs25 lakh, SEBI said.