SEBI plans a slew of regulatory changes

The financial watchdog has planned a slew of regulatory changes, including introduction of a debt trading platform. However, mostly intermediaries and corporates are to benefit with hardly any mention of retail investors

The Securities and Exchange Board of India (SEBI) held a board meeting today, in Chennai, and took several key decisions regarding Indian financial and capital markets. However, we notice that most of the changes or modifications mainly pertain to institutions and corporates. SEBI is also supposedly mooting to develop the corporate bond markets to encourage trading on stock exchanges.  Surprisingly, not much has been discussed with regard to the most important entity of them all—the retail investor.

Some of important changes are:

  1. Review of Offer for Sale (OFS) through stock exchange mechanism

As most readers would be aware, the deadline for minimum public shareholding nears (June 2013), SEBI has now made it easier for participants, particularly institutions to acquire promoters’ stake through the stock exchange. For this, SEBI board members agreed to make technical changes namely: margin requirements by institutions and visibility of order book especially with regard to indicative price, to facilitate this.

According SEBI’s press release, “The Board noted that the OFS mechanism has been found to be useful by market participants and popular for offloading shares of promoters in listed companies in order to achieve minimum public shareholding. As the deadline of June 2013 to achieve minimum public shareholding is fast approaching and large number of promoters is expected to offload their shares through OFS route, the Board has approved the following changes in the OFS mechanism to make it more economical, efficient and transparent.”

You can check our earlier article on minimum shareholding and which companies are likely to delist or use this facility over here.

  1. It is amending Takeover Regulations in order to make it more in parity with the existing ‘disclosure’ norms. There isn’t too much clarity on this part and the purpose. Mostly, it is technical in nature.

The SEBI Board took note of the concerns raised during the implementation of Takeover Regulations, 2011, and decided to make it mandatory for companies to disclose the relevant date for making public announcement and offer price, for both acquisitions and preferential allotments. The press release said, “Where the open offer obligations are triggered pursuant to an agreement or otherwise in combination of any modes of acquisition, the ‘relevant date’ for making the public announcement and determination of offer price shall be the earliest date on which obligations are triggered.”

It also changed norms for completion of market purchase of shares made during the offer period. Earlier, the Takeover Regulations did not allow completion of acquisition of shares or voting rights which triggers the open offer obligations until the expiry of the offer period. But such acquisition can be completed after the expiry of 21 working days from the date of the detailed public statement, provided the acquirer deposits 100% of the consideration payable in cash in the escrow account. The regulations also allowed purchase of shares from stock exchange which required to be completed within two days as per settlement process, thus creating an anomalous situation.

Now, SEBI has decided that market purchases made during the open offer period can be completed during the open offer period, subject to such shares being kept in an escrow account. Further, these shares can be transferred from the escrow account to the name of the acquirer after the expiry of 21 working days from the date of the detailed public statement, provided the acquirer deposits 100 percent of the consideration payable in cash in the escrow account.

  1. It plans to modify Mutual Funds Regulations with respect to Infrastructure Debt Fund (IDF). Mainly, SEBI has widened the scope of “strategic investors” in addition to permitting trustees to extend the scheme duration by two years provided 2/3rds of investors give their consent.

The scope of strategic investors would include:

  • Systemically important NBFCs registered with Reserve Bank of India
  • FIIs registered with SEBI which are long term investors, subject to their applicable investment limits
  • An Infrastructure Finance Company registered with Reserve Bank of India as Non Banking Financial Company
  • A Scheduled Commercial Bank
  • International Multilateral Financial Institution


It has also facilitated private placement as an alternative to NFO in certain situations, bypassing public investors. SEBI said, “Private placement to less than 50 investors would be permitted as an alternative. In case of private placement, the mutual funds would only have to file a placement memorandum with SEBI instead of a Scheme Information Document and a Key Information Memorandum. However, all the other conditions applicable to IDFs offered through the NFO route like kind of investments, investment restrictions, etc. would be applicable to IDFs offered through private placement.”


Furthermore, an IDF can invest up to 30% of its assets under management in assets not below investment grade. Earlier it was 20%. At the same time, it has also restricted investment in non-investment grade assets to 30% and which can be extended to 50% with prior approval from Boards of trustees and AMCs.


  1. It was decided by SEBI to widen the ambit of corporate debt trading in India and it plans to amend the broking and sub-broking regulations, which will also include scheduled commercial banks, pension funds, mutual funds, dealers into the definition of “proprietary trading member”. For this, SEBI would include regulations on trading, reporting, membership, clearing, settlement and risk management and much more.
  1. It plans to amend KYC regulations to make it easier for intermediaries to send documents to the KYC registration agency by permitting scanned copies sent over electronic medium. SEBI said, “This proposal will help to reduce the cost of and delay in movement of documents, saving in warehousing charges and avoiding physical print out of documents of millions of existing investors.”
  1. In order to provide liquidity in domestic markets for Indian Depository Receipts (IDR), it was decided to permit two-way fungibility of IDRs. Furthermore, it plans to issue a detail roadmap for future IDR issuances.

You may also want to read How SEBI treats investor associations




4 years ago

If you think about it . . .

Where is the need for KYC in case of resident Indians?

1) all investments are done through cheques that are drawn from the investor's account only; and

2)Pan card is made a mandatory requirement ( proof of pan card to be attached with every investment regardless of the amount).

KYC does not capture any additional information and therefore is only duplication of records.

parimal shah

4 years ago

Why we do not learn from others' mistakes? US went bankrupt because of poor assets quality debt, and allowed to trade in those debts. Why do we want to mimick this? If I know I can pass-on the debt to someone else and make a small money in the bargain, I will be more inclined to give debt even for a poor quality assests.

BSE Sensex, Nifty uptrend continues: Friday Closing Report

For the Nifty to reverse, it has to go below 6,025

The market settled in the positive for the second day in a row as investor sentiment received a boost following the government’s decision in allowing oil companies to hike diesel prices. From here, if the Nifty goes below 6,025, we may see a reversal of the trend. The National Stock Exchange (NSE) saw an advance decline ratio of 666:1033 and the volume of 71.20 crore shares.


Earlier, the Indian market opened in the positive on firm global cues. The Asian indices opened in the green on the back of report which showed the number of Americans filing new claims for unemployment aid hit a five-year low last week and reports of a 7.9% GDP growth in China in the December quarter.


The Sensex opened at 20,039 and soon hit its intraday high of 20,127 which was the highest opening after 7 January 2011 while Nifty opened at 6,060 and hit a high of 6,083, the highest after 6 January 2011.


While the mix of corporate result kept the indices in the positive, the trend was falling one. Hero MotoCorp, which came out with its result on Thursday after the market hours, missed estimates for the fourth straight quarter. Wipro’s performance for the third quarter was not as strong as expected while HDFC Bank came out with good results meeting the analysts’ expectations.


In the post noon session the indices hit their respective lows and closed slightly above that level. The Sensex made a higher low of 19,991 and closed at 20,039, a gain of 75 points or 0.38% while the Nifty hit a higher low of 6,048 and closed at 6,064, 25 points up, or 0.42%.


While the Sensex settled in the positive, the broader indices ended lower. The BSE Mid-cap index fell 0.23% and the BSE Small-cap index declined 0.52%).


The top sectoral gainers were BSE Oil & Gas (up 3.09%); BSE PSU (up 2.77%); BSE Power (up 1.44%); BSE Realty (up 0.86%) and BSE Capital Goods (up 0.21%). The main losers were BSE IT, BSE TECk (down 1.13% each); BSE Auto (down 0.73%); BSE Metal (down 0.61%) and BSE Consumer Durables (down 0.59%).


Sixteen of the 30 stocks on the Sensex closed in the positive. The chief gainers were ONGC (up 7.31%); NTPC (up 4.59%); Maruti Suzuki (up 3.26%); GAIL India (up 2.10%) and HDFC (up 1.56%). The key losers were Wipro (down 7.88%); Hero MotoCorp (down 2.86%); Dr Reddy’s Laboratories (down 2.60%); Hindustan Unilever (down 2.10%) and Sterlite Industries (down 2.03%).


The top two A Group gainers on the BSE were—Indian Oil Corporation (up 10.46%) and BPCL (up 9.64%).

The top two A Group losers on the BSE were—Exide Industries (down 9.36%) and Wipro (down 7.88%).


The top two B Group gainers on the BSE were—TPL Plastech (up 20% and Ranklin Solution (down 19.97%).

The top two B Group losers on the BSE were—Marg (down 11.51%) and Nutraplus Products (down 9.98%).


Out of the 50 stocks listed on the Nifty, 25 stocks settled in the positive. The major gainers were BPCL (up 10.44%); ONGC (up 7.31%); NTPC (up 4.90%); Maruti Suzuki (up 3.73%) and GAIL India (up 2.56%). Wipro (down 8.06%); Dr Reddy’s Labs (down 2.68%); Hero MotoCorp (down 2.62%); Jindal Steel & Power (down 2.34%) and HUL (down 2.11%) were the top losers on the benchmark.


Asian indices closed mostly higher on positive economic data from China. China's economy grew by 7.9% in the December 2012 quarter compared to a year earlier. The GDP growth represented an increase from 7.4% growth in the third quarter and 7.6% growth in the second quarter.


Except for KLSE Composite, all Asian indices closed in the positive. Nikkei 225 was the highest gainer, up 2.86% while the KLSE Composite declined 0.27%.


At the time of writing, the European markets were mixed with a mixed bias while the US stock futures were marginally lower.


Back home, inflows from foreign institutional investors (FIIs) on Thursday were offset by withdrawals by domestic institutional investors (DIIs). While FIIs invested Rs564.20 crore in stocks, DIIs pulled out Rs519.78 crore from the equities segment.


Venus Remedies today said it is aiming to garner around $100 million (over Rs500 crore) in the next five years from its new drug that is used for combating spread of bacterial resistance. The company, which plans to launch the drug in various countries, is introducing 'Elores' first in India. The stock rose 1.24% to close at Rs278 on the NSE.


FMCG major Colgate-Palmolive India today said company management is still in discussions to resolve issues with one of the unions at Goa facility, where work has been temporarily stopped since 6th January, following protests against suspension of a colleague. The stock gained 3.58% to close at Rs1,497.05 on the NSE.


Hindalco Industries, the metals flagship of the Aditya Birla Group, today said it has finalised arrangement for acquiring alumina refinery and bauxite mines in Brazil from its wholly-owned subsidiary Novelis as part of corporate reorganisation plan. The alumina refinery, with a capacity of 145 KTPA, situated in the city of Ouro Preto, State of Minas Gerias, Brazil, has mining rights of over 50 million tonnes of bauxite reserves. The stock gained 0.33% to close at Rs122.45 on the NSE.


Railways to face a hit of Rs2,700 crore a year on account of diesel hike

The diesel hike comes at a time when the Railways is facing an acute financial crunch. Earnings from passengers and freight have failed to meet the target in the current fiscal


New Delhi: The diesel price hike has put an additional burden of around Rs2,700 crore a year on the cash- strapped Indian Railways, reports PTI quoting a senior official.


“We have to pay Rs10.80 per litre more now as the bulk price of diesel has gone up,” said the railway ministry official, adding, “The fuel bill will be about Rs2,700 crore more per year due the latest hike.”


The government had yesterday allowed state-run oil majors to fix diesel prices on their own in order to reduce an expanding subsidy bill and budget deficit. Oil companies announced a dual price mechanism while hiking the rates.


While the retail consumer will be paying 50 paisa more per litre, for bulk consumers the hike is more than Rs10 per litre.


The national transporter paid about Rs10,000 crore during the last fiscal towards its fuel bill, which has been rising every year due to increase in fuel cost.


The diesel hike comes at a time when the Railways is facing an acute financial crunch. Earnings from passengers and freight have failed to meet the target in the current fiscal.


The annual plan allocation has also been reduced from Rs60,000 crore to Rs51,000 crore this year.


As per the government’s decision, bulk consumers such as Railways and state transport corporations will have to buy diesel at market price.


Railways procure about 250 crore litre per year from oil companies for its fleet of 4,500 diesel locomotives hauling both passenger and freight trains.


Railways had recently hiked passenger fares in all classes to earn additional revenue of Rs6,600 crore in a year. The passenger fare hike will come into effect from 22nd January.


The three oil PSUs—Indian Oil, HPCL and BPCL—supply fuel providing a subsidy of 30 paisa per litre as Railways is a bulk consumer of diesel.


However, with the subsidy gone, Railways will have to buy fuel at market rate which is likely to hit hard the national transporter.


“We get 80% of our supply from IOC and rest from other two oil majors,” the official said.


Diesel price was raised by Rs5 in September last year.


Last year Railways had effected a 20% hike in freight rates.


However, it seems unlikely that Railways would consider another freight hike despite its rising fuel cost.


“We do not want the Railways to be outpriced in the market because of higher freight rate and we have to be competitive,” railway minister Pawan Kumar Bansal had earlier said.


Currently the Railways' share in the freight market is 36% only while in the US it is 48%. The national transporter wants to attract a higher percentage of freight transportation by offering competitive rates as compared to road transporters.


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