SEBI Board approved norms to exercise new powers of search and seizure, investor refund, settlement proceedings and money-pooling
Market regulator Securities and Exchange Board of India (SEBI) on Tuesday said its Board has approved norms to exercise new powers of search and seizure, investor refund, settlement proceedings and money-pooling. SEBI Board also approved expanded list of entities permitted to file shelf prospectus that includes infra debt funds as well as some classes of non-banking financial companies (NBFCs) and housing finance companies.
While doing away with the mandatory grading for IPOs, the market regulator said prospectus filed by companies would remain valid for multiple debt offers in one year. SEBI Board however, deferred a decision on regulations for the much-awaited real estate investment trusts (REITs). As part of its third attempt to revive REITs, the market regulator in October had floated draft guidelines for it.
Here are the decisions taken by SEBI Board...
1. Amendment to Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999
The Securities Laws (Amendment) Ordinance, 2013 provides for regulation of pooling of funds under any scheme or arrangement, involving a corpus amount of one hundred crore rupees or more, to be deemed to be a Collective Investment Scheme, subject to sub-section (3) of section 11AA of the SEBI Act.
Accordingly, a proposal to amend the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999, providing a framework for regulation of such deemed Collective Investment Schemes and additional requirements for continuous compliance by a registered Collective Investment Scheme, was approved by the Board.
2. Amendments to SEBI (Investor Protection and Education Fund) Regulations, 2009
Consequent to the promulgation of Securities Laws (Amendment) (Second) Ordinance, 2013, the Board has approved amendment to SEBI (IPEF) Regulations, 2009 enabling utilization of such amounts primarily for restitution to investors and in case of failure of identification of investors, for the credit of amounts disgorged under the SEBI Act 1992, the Securities Contracts (Regulation) Act 1956 or the Depositories Act 1996 to the Investor Protection and Education Fund of SEBI.
3. Class of companies eligible to file shelf prospectus for public issuance of non-convertible debt securities
While Companies Act, 1956 had allowed only Banks and Public Financial institutions to file Shelf Prospectus, the Companies Act, 2013 enables SEBI to specify the class of the companies which can be allowed to file Shelf Prospectus. In this regard, the Board has decided to allow the following class of entities to file Shelf Prospectus for public issuance of non-convertible debt securities:
To avoid fragmentation of the issues, which will affect the floating stock and thereby liquidity, it is further stipulated that only a maximum of four issuances can be made under a Shelf Prospectus.
Further, companies filing a shelf prospectus with the Registrar of Companies are not required to file prospectus afresh at every stage of offer of securities, within the period of validity of such shelf prospectus i.e. one year. They are required to file only an information memorandum, containing material updations, with respect to subsequent issues.
4. SEBI (Procedure for Search and Seizure) Regulations, 2013
The Securities Laws (Amendment) Second Ordinance, 2013, inter alia, confers direct powers on Chairman, SEBI to authorize the Investigating Authority or any other officer of SEBI to search any premises where incriminating documents are lying and seize such documents for the purpose of investigation. The Ordinance also empowers SEBI to make regulations for executing the search operations and to ensure safe custody of any books of account or other documents that are seized.
In this respect, the Board approved the SEBI (Procedure for Search and Seizure) Regulations, 2013, made on the lines of the provisions in the Income Tax Act, 1961 and for providing the detailed procedures for such search and seizures by SEBI.
5. Making IPO Grading Mechanism Voluntary - Amendment to SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009
Considering the requests received from market participants, viz. investor associations and Association of Investment Bankers of India (AIBI), the recommendation of the advisory committee of SEBI, and to align with the principles laid down by Financial Stability Board (FSB) on reducing the reliance on Credit Rating Agencies, the Board approved the proposal to make the IPO grading mechanism "voluntary" as against the current provision of the same being "mandatory".
6. SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2013
The SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2013 were approved by the Board, subject to inclusion of the guidelines determining the settlement terms as part of regulations These regulations have been framed, keeping in view the provisions of the SEBI Act, as modified by the Securities Laws (Amendment) Second Ordinance, 2013, as also the public comments received on the Consultation Paper on the draft regulations that was placed on the SEBI website.
The salient features of the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2013 are as under:
7. FPI Regulations
As regards FPI Regulations, the communication from the Department of Economic Affairs to the CBDT and to SEBI, conveying the decision that all three categories of FPIs would be given similar tax treatment as available to FIIs presently, was noted.
The NSE Nifty may move sideways ahead of the December F&O expiry
The BSE 30-share Sensex which opened in the positive for the fourth consecutive trading session on Tuesday was drawn into the red in the noon session after the occasional plunges in the negative in the morning session. The positive US economic data could not keep the indices in the positive and the indices closed in the red after two consecutive positive sessions. On Monday, we mentioned that Nifty has to stay above 6,280 and make higher highs, to keep the short-term rally going. Today the index closed below this level breaking the past two days of positive move.
The Sensex opened at 21,128 and after hitting a high of 21,157 went lower to hit a low of 21,011 and closed almost at the same level. The Sensex closed at 21,033 (down 68 points or 0.32%). The Nifty which opened at 6,296, hit a high of 6,302. The index hit a low 6,262 and closed at 6,268 (down 16 points or 0.26%). The NSE recorded a volume of 62.18 crore shares.
Among the other indices on the NSE, the top five gainers were Smallcap (0.86%); Midcap (0.53%); Midcap 50 (0.44%); PSU Bank (0.37%) and Media (0.23%) while the Metal (0.96%); Finance (0.51%); Bank Nifty (0.42%); Service (0.35%) and Commodities (0.31%).
Of the 50 stocks on the Nifty, 19 ended in the green. The top five gainers were Ranbaxy (2.73%); Bhel (2.25%); Bajaj Auto (2.07%); Ambuja Cements (1.84%) and PNB (1.61%). The bottom five losers were Tata Power (3.20%); Sesa Sterlite (2.28%); Wipro (2.19%); Bank of Baroda (1.88%) and IndusInd Bank (1.82%).
Of the 1,241 companies on the NSE, 712 closed in the positive, 467 closed in the negative while 62 closed flat.
The Reserve Bank of India (RBI) could soon unveil a major change in monetary policy to explicitly manage consumer inflation, rather than wholesale prices, its main objective. The report, due by the end of the month, could also recommend making price stability the main objective of the central bank, while keeping but trimming the focus on its two other objectives: economic growth and financial stability.
US indices closed in the positive on Monday. US household purchases, which account for almost 70% of the economy, rose 0.5% after a 0.4% gain in October that was larger than previously estimated, the Commerce Department reported in Washington. A separate report showed consumer confidence increased in December. The Thomson Reuters/University of Michigan final index of consumer sentiment climbed to 82.5 from 75.1 a month earlier.
Except for Taiwan Weighted (down 0.07%) all the other Asian indices closed in the positive. The top gainer was Hang Seng which rose 1.13%.
China's central bank conducted the first reverse-repurchase agreements in three weeks, helping to ease the tightest financing conditions since a record cash crunch in June.
In Japan, the Cabinet Office released its December economic report today. The report dropped a reference to the word deflation for the first time since October 2009, saying "prices are holding firm."
Indonesia announced today that it will allow increased levels of foreign investment in the country's power plants, advertising, and pharmaceutical industries as part of government efforts to boost the slowing economy. Under the new policy, the government increased the maximum foreign investment in pharmaceutical companies to 85% from 75%, and in advertising agencies to 51% from 49%. Indonesia also allowed foreign investment of up to 100% from 95% for power plant projects carried out as a public-private partnership. Under the partnership terms, a foreign investor now can own an entire power-plant during a concession period, after which some equity transfers to the government.
European indices were trading in the green while US Future were trading marginally higher.
HDFC Mutual Fund is one of the top asset managers in the mutual fund industry and yet, surprisingly, spent nearly 4%-5% of the total assets of Morgan Stanley to increase its own asset base by a meagre 3%
Morgan Stanley Mutual Fund is selling around Rs3,300 crore of assets to HDFC Mutual Fund which would mean just a 3% addition to HDFC Mutual Fund’s assets under management (AUM) of over Rs1 lakh crore. In the current acquisition, the mutual fund schemes of Morgan Stanley Mutual Fund that would merge with schemes of HDFC Mutual Fund are: Morgan Stanley A.C.E, Morgan Stanley Active Bond, Morgan Stanley Gilt, Morgan Stanley Growth, Morgan Stanley Liquid Fund, Morgan Stanley Multi Asset, Morgan Stanley Short Term Bond and Morgan Stanley Ultra Short Term Bond.
Why would a HDFC Mutual Fund, a fund house with the highest assets in the industry, acquire schemes of a smaller mutual fund house which makes adds an insignificant 3% to HDFC Mutual Fund’s assets under management? This would make business sense only if the cost of acquiring new investors would be more than the cost of acquiring the schemes of another fund house. Is it that even a top performing fund house is probably finding it difficult to acquire new investors?
Last year Fidelity Mutual Fund sold its assets to L&T Mutual Fund. Morgan Stanley Mutual Fund is the second fund house to sell off its mutual fund asset this year after Daiwa Mutual Fund sold its assets to SBI Mutual Fund for an undisclosed amount. With heavy outflow of assets over the recent years, many mutual fund houses have found their businesses unviable. The fact remains that investors are not interested in investing in mutual funds due to flawed products, flawed methods of selling, flawed regulation and huge costs to acquire new investors.
Only three mutual fund schemes of Morgan Stanley Mutual Fund have a corpus over Rs50 crore. Morgan Stanley Growth, an equity scheme, launched nearly two decades back, has a corpus of just Rs68 crore. The other two are Morgan Stanley Liquid Fund and Morgan Stanley Ultra Short-Term Fund. What is clear is that the Morgan Stanley Mutual Fund has been struggling to increase its corpus, having made a half-hearted push a few years ago to increase its range of funds.
According to an article published by Economic Times, HDFC Mutual Fund is said to have paid Rs150-170 crore which works out to 4.5% to 5% of the total assets of Morgan Stanley Mutual Fund. Considering fund houses were paying as much as 6% commissions to distributors for getting high ticket value investments for Rajiv Gandhi Equity Savings Schemes, HDFC Mutual Fund would have probably found this route of asset acquisition a cheaper alternative. (Read: High value applications perverting RGESS, while SEBI remains mum)
To get noticed by investors, mutual fund houses would need to pay high commissions to distributors to promote their mutual fund schemes and more so, after the ban on entry load in August 2009 that killed all incentives to sell mutual funds. Three years back we had reported that SEBI might have shot the mutual fund industry in the back by banning entry load without thinking through the implications. (Read: Mutual Fund turmoil: Can SEBI be held accountable?). With the banning of entry load, the distributors’ margins have been squeezed and they have been exiting the business of selling mutual fund in droves. Mutual fund houses had their hands tied, because if they had to increase commissions for distributors they would have to pay from their own pockets. In the past few years, there has been a huge outflow of equity assets, while the markets have remained volatile and flat. With depleting mutual fund corpuses, many mutual fund houses would have found the business unviable.
According to Birla Sun Life Mutual Fund, the fifty years old Indian mutual fund industry is fraught with a number of challenges. A press release stated that the penetration of mutual funds in India (as measured by the AUM/GDP ratio) remains low at 4.7% as compared to 77.0% in the US, 41.1% in Europe and 33.6% in the UK. Greatly under-penetrated, the industry comprising over 40 mutual fund companies today collectively manages 2.5% of Indian household savings. The right kind of awareness among investors about mutual funds, the diversity and benefits of its offerings remains a challenge. Being an advisory product which is largely distribution driven, stagnation in growth of distributor base also acts as a limiting factor.
Over the past year the SEBI came out with a slew of reforms in order to drive more retail participation. However, these new policies have had a marginal impact on mutual fund inflows. For years SEBI failed to pay heed to the voices of investors. Under the last two chairmen it did not pay heed to market players either. It has taken a trip on its own, at the cost of hapless retail investors and the mutual fund industry.