Market regulator SEBI, in its last board meeting for FY2017-18, on Wednesday accepted 40 out of 80 recommendations from the Kotak Committee on Corporate Governance as well host of other issues, like ways to strengthen algo trading, amendments to rules on angel funds, mutual funds, buybacks, and takeovers. For reducing investment cost, SEBI has decided to cut to five basis points (bps) from 20 bps, the additional expenses incurred by mutual funds, in lieu of exit load.
The SEBI Board decided to cut maximum number of directors on a company board to eight from 10 from 1 April 2019 and by seven from 1 April 2020. Similarly, there would be minimum six directors on the board of top 1000 listed companies by market capitalisation by 1 April 2019 and for top 2000 entities by 1 April 2020. The top 500 listed entities by market capitalisation will have to have one woman independent director by 1 April 2019, followed by top 1000 entities by 1 April 2020.
SEBI has also recommended separation of post of Chief Executive and Managing Director and Chairperson. This will be first applicable for top 500 entities from 1 April 2020. Top 100 entities by market capitalisation will have to mandatorily do webcast of annual general meetings (AGMs) from FY2018-19.
For royalty or brand payments to related party exceeding 2% of consolidated turnover, the entity will to seek approval from majority of minority shareholders, SEBI said.
To reduce cost for trading members wishing to operate from a colocation facility, SEBI has asked stock exchanges to introduce shared colocation services besides providing tick-by-tick (TBT) feed to all members free of cost.
Under the penalty framework for order to trade ratio (OTR), penalty would be levied on Algo orders placed beyond ±0.75%.of Last Traded price (LTP) from the current level of ±1% of LTP. Further, the OTR framework would also be extended to orders placed in the equity cash segment and orders placed under the Liquidity enhancement Scheme (LES).
Stock Exchanges to allot a unique identifier to each algorithm approved and each order generated by the algorithm to carry the unique identifier with it, in order to establish an audit trail and to ensure better surveillance of Algo trading.
In addition to the current disclosure of latencies, Stock Exchanges to publish minimum, maximum and mean latencies and latencies at 50th and 99th percentile, observed within the exchange trading infrastructure to ensure greater transparency. Further, exchanges to also publish a reference latency between a reference rack in the co-located facility and the core router of the Exchange.
Stock Exchanges to provide a simulated market environment for testing of software including algorithms. Stock Exchanges to provide such facility over and beyond the current framework of mock trading.
Rationalizing and Strengthening the framework of Equity Derivatives Market:
SEBI Board took note of discussion papers titled 'Growth and Development of Equity Derivatives Market in India' and 'Physical settlement in stock derivatives', public comments received thereon and also recommendations of the Secondary Market Advisory Committee (SMAC). Proposals approved by the Board to rationalize and strengthen the framework of the equity derivatives market, inter-alia, include the following:
I. To facilitate greater alignment of the cash and derivative market, physical settlement for all stock derivatives shall be carried out in a phased and calibrated manner.
II. To update and strengthen the existing entry criteria for introduction of stocks into the derivative segment in line with the increase in market capitalization since the last revision of the criteria in 2012. Accordingly, existing criteria like market wide position limit and median quarter-sigma order size shall be revised upward from current level of Rs300 crore and Rs10 lakh respectively to Rs500 crore and Rs25 lakh respectively. An additional criterion, of average daily 'deliverable' value in the cash market of Rs10 crore, has also been prescribed. The enhanced criteria are to be met for a continuous period of six months.
III. To begin with, stocks, which are currently in derivatives but fail to meet any of the enhanced criteria, would be physically settled. Such stocks would exit the derivative segment if they fail to meet any of the enhanced criteria within a period of one year from the specified date or fail to meet any of the current existing criteria for a continuous period of three months.
IV. Stocks, which are currently in derivatives and meet the enhanced criteria shall be cash settled. Such stocks if they fail to meet any one of the enhanced criteria for a continuous period of three months shall move from cash settlement to physical settlement. After moving to physical settlement if such stock does not meet any of the current existing criteria for a continuous period of three months, then it would exit out of derivatives. After a period of one year from the specified date, only those stocks which meet the enhanced criteria would remain in derivatives.
V. To reflect global initiatives on product suitability, a framework has been approved. Individual investors may freely take exposure in the market(cash and derivatives) upto a computed exposure based on their disclosed income as per their Income Tax Return(ITR) over a period of time. For exposure beyond the computed exposure, the intermediary would be required to undertake rigorous due diligence and take appropriate documentation from the investor.