SEBI's Committee of Executive Directors felt that the investment of funds should be guided by consideration of return balanced with safety of funds rather than sole criterion of highest return
New Delhi: Capital market regulator Securities and Exchange Board of India (SEBI) has decided to park its surplus funds in fixed deposits of public sector banks, even if the returns offered by them are lower than that of private banks by up to 10 basis points or 0.1%, reports PTI.
The current investment policy of SEBI is guided by the sole criteria of highest return, but it has been now proposed to change to the consideration of return as well as 'safety of funds'.
SEBI's board discussed the matter at its last meeting, after its Committee of Executive Directors (CoED) recommended a change in the regulator's investment policy to this effect, a senior official said.
SEBI's Audit Committee has also agreed with the CoED recommendations in this regard.
The surplus funds available with SEBI are invested as per its approved policy guidelines for investment, which have been in place since April 2009.
Presently, investment of surplus funds of SEBI is made in fixed deposits (FDs) after inviting competitive quotes from PSU banks and approved private sector banks and institutions.
These investments are subject to certain exposure limits and are made with the banks offering highest quote for the desired tenure.
The exposure limit is 20% for a PSU bank and 10% for approved private banks or institutions. The private entities approved by SEBI for such investments are ICICI Bank, Axis Bank and HDFC Bank/HDFC Ltd. The exposure limit of 10% is considered cumulative for HDFC Bank and HDFC Ltd.
Each investment proposal is approved by the CoED, which after its recent discussions felt that the investment of funds should be guided by consideration of return balanced with safety of funds rather than sole criterion of highest return.
Accordingly, the CoED recommended that the funds may be invested in fixed deposits with a public sector bank, even if its quote is lower by not more than 10 basis points, as compared with the highest of the quotes offered by any of the approved private sector entities.
The Audit Committee has also expressed its views that SEBI might continue with the present policy of making investment with ICICI Bank, Axis Bank and HDFC Bank/HDFC Ltd, subject to the present exposure limits.
SEBI's funds comprise of fees and penalties collected by the regulator from various market entities and listed firms.
As per SEBI's budget estimates, its overall accounts had a surplus (of income over expenses) of Rs104.31 crore for 2011-12.
Its total revenue for the fiscal ended 31 March 2011 is estimated at about Rs338 crore and net surplus after various expenses at about Rs180 crore. The regulator's fee income alone that year stood at about Rs200 crore.
SEBI's crackdown against unregulated staff welfare schemes and trusts has comes amid concerns that some companies may be funding these schemes to deal in their own securities with an aim to manipulate the share price by engaging into fraudulent and unfair trade practices
New Delhi: Capital market regulator Securities and Exchange Board of India (SEBI) has barred employee welfare schemes and trusts of listed entities from purchasing their own shares from the secondary market, fearing stock manipulation, reports PTI.
Besides, SEBI will also ask listed companies to disclose all their existing employee benefit schemes involving stock purchase and align them in accordance with its employee stock option scheme (ESOS) and employee stock purchase scheme (ESPS) guidelines within a given timeframe.
SEBI's ESOS and ESPS guidelines allow listed companies to reward their employees through stock option schemes and stock purchase schemes.
SEBI's crackdown against unregulated staff welfare schemes and trusts has comes amid concerns that some companies may be funding these schemes to deal in their own securities with an aim to manipulate the share price by engaging into fraudulent and unfair trade practices.
The regulations prohibit the companies from buying their own shares, unless it is consequent to reduction of capital and for certain regulatory requirements.
The companies are also not allowed to give any loan, guarantee or other financial assistance for purchase of any shares in the company or in its holding company.
However, these restrictions does not apply, if the company provides funds to a Trust set up for the benefit of the employees and the Trust utilise such funds for purchase or subscription of shares in the company or its holding company.
SEBI has come across instances of companies putting in place certain employee benefit schemes, pursuant to which they are setting up Trusts either by themselves or through third party service providers to deal in shares of the company.
Some of the companies have also asked SEBI whether these schemes, which may involve purchase from secondary market by the Trust or by third parties for the benefit of employees, would fall under its ESOS and ESPS guidelines.
As per SEBI guidelines, ESOS/ESPS Trusts can only distribute options/shares to its employees issued by the company. Even under ESPS, the shares have to be issued by the company through a public issue or related methods.
The guidelines are, however, silent on acquisition of shares from secondary market, although schemes involving purchase of shares from secondary market do not fall within the ambit of SEBI (ESOS and ESPS) Guidelines.
Employees not eligible for ESOP/ESPS include promoters, directors and those directly or through relatives or corporate bodies having over 10% stake in the company.
However, these restrictions do not apply if the staff welfare schemes do not come under SEBI's ESOS or ESPS guidelines. As a result, SEBI fears, the promoters by virtue of their direct or indirect control over such Trusts can get to control additional voting power.
Also, there is lack of consistency in disclosure of such shares held by trusts under shareholding pattern filed with stock exchanges. While in some cases, these shares were disclosed under promoter group, whereas in some cases, these shares are disclosed as part of public shareholding.
Provisions relating to pricing, lock-in, accounting policies, disclosure, among others, are also not applicable to such employee benefit schemes.
SEBI feels that allowing listed companies to have their own stock options or stock purchase schemes which are not covered by SEBI (ESOS & ESPS) Guidelines may lead to each company proposing their own schemes.
As a result through such schemes, company's funds may be used for manipulating its own securities by dealing in secondary market transactions, SEBI feels.
Such dealing in the company's shares by the Trusts raises concern regarding compliance with SEBI rules for Prohibition of Fraudulent and Unfair Trade Practices and also the Prohibition of Insider Trading Regulations.
The issues have been also discussed by SEBI's Primary Market Advisory Committee (PMAC). The PMAC also opined that secondary market trading by such Trusts should not be allowed.
Accordingly, SEBI has decided to restrain listed firms from framing any employee benefit scheme involving acquisition from secondary market.
SEBI has also decided to convert its ESOS and ESPS Guidelines into Regulations, which would address all the prevailing concerns, as also the issues related to composition of employee welfare trusts and required disclosure
The changes with regard to prohibition of purchase of shares from secondary market are being made immediately to avoid any manipulation through such unregulated employee benefit schemes.
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