Amendments by SEBI in February 2024
1. Procedure to apply for a waiver of fines levied through the Listing Centre.
BSE on January 01, 2024, vide Notice No. 20240101-18 provided the procedure to apply for a waiver of fines levied through the Listing Centre.
This is with reference to the SEBI circular SEBI/HO/CFD/CMD/CIR/P/2020/12 dated January 22, 2020, and Exchange circular 20220331-52 dated March 31, 2022, wherein SEBI has directed the Exchanges that they may deviate from the actions prescribed in SOP Circulars, if found necessary, only after recording reasons in writing.
- The Waiver application by companies shall be made by logging into at listing Centre. The path for the same is:
Listing Centre > Listing Operations > Listing Module > Issue Type > Waiver > Sub-process > Waiver - With effect from January 01, 2024, only those applications made through the Waiver Application Module of the Listing Centre would be considered valid waiver applications.
The link for the aforesaid Circular is as follows:
https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20240101-18
2. Framework for Short Selling
SEBI vide Circular No. SEBI/HO/MRD/MRD-PoD-3/P/CIR/2024/1 dated January 05, 2024 (“the Circular”) amended the Master Circular for Stock Exchanges and Clearing Corporations dated October 16, 2023.
Vide the Circular, SEBI amended the broad framework for Short Selling, to bring it in with the rescinded SEBI Circular dated December 20, 2007. In this recent Circular, the following specifications are inserted in addition to existing specifications, requires the following:
- The institutional investors are required to disclose upfrontat the time of placement of order whether the transaction is a short sale. However, retail investors must make a similar disclosure by the end of the trading hours on the transaction day
- The brokers must collect and collate the details on scrip-wise short-sell positionsand upload them to the stock exchanges before the commencement of trading on the following trading day
- The stock exchanges shall then consolidate such information and disseminatethe same on their websites every week for the information of the public.
- The frequency of such disclosure may be reviewed from time to time with the approval of SEBI.
The link of the aforesaid Circular is as follows:
https://www.sebi.gov.in/legal/circulars/jan-2024/framework-for-short-selling_80448.html
3. SEBI (Alternative Investment Funds) (Amendment) Regulations, 2024
SEBI vide Notification SEBI/LAD-NRO/GN/2024/163 dated January 05, 2024, notified the SEBI (Alternative Investment Funds) (Amendment) Regulations, 2024 (“Amendment Regulations”) to further amend the SEBI (Alternative Investment Funds) Regulations, 2012 (“the Regulations”).
The amendments are as follows:
i. In Regulation 15(1) with respect to General Investment Conditions, a new sub-clause (i) has been inserted which states that the Alternative Investment Funds (AIF) should hold their investments in dematerialized form, subject to conditions specified by SEBI. However, the following investments by AIFs are not required to be held in the dematerialized form:
a. investments which are not eligible for dematerialization;
b. investments held by a liquidation scheme of AIF that is not available in dematerialized form;
c. such other investments and such other schemes of AIF as may be specified by SEBI from time to time.
ii. In Regulation 20 with respect to General Obligations, sub-regulation (11) has been substituted to provide for the Sponsor or Manager of the AIF shall appoint a Custodian registered with SEBI for safekeeping of the securities of the AIF. The Custodian appointed by the Sponsor or Manager of a Category III AIF shall keep the custody of the securities and goods received in the delivery against the physical settlement of the commodity derivative.
The Custodian appointed by the Sponsor or Manager of AIF shall report/ disclose such information regarding investments of the AIF in such manner as specified by SEBI.
iii. In Regulation 20 with respect to General Obligations, a new Sub-regulation (11A) has been inserted which provides for conditions to be satisfied by a Custodian which is an Associate of the Sponsor or Manager of the AIF to act as the Custodian of the AIF.
The link of the aforesaid Notification is as follows:
https://egazette.gov.in/(S(sjabi5qmqkg21jll14sntkfn))/ViewPDF.aspx
4. Consultation Paper on Additional proposals regarding Framework for Issuance of Subordinate Units – REITs and InvITs
SEBI (Real Estate Investment Trusts) Regulations, 2014 (“REIT Regulations”) and SEBI (Infrastructure Investment Trusts) Regulations, 2014 (“InvIT Regulations”) permit REITs and InvITs to issue subordinate units only to the sponsors and their associates. However, there is no framework detailing the mechanism for the issuance of subordinate units.
Further, REIT Regulations and InvIT Regulations do not specifically permit the Manager of REIT / Investment Manager of InvIT to acquire units of REIT/ InvIT to offer benefits to its employees based on such units.
An enabling framework for the Manager of REIT / Investment Manager of InvIT to offer benefits to its employees based on units of the REIT / InvIT will result in better alignment of the interest of employees of the Manager / Investment Manager with the interest of REIT / InvIT.
On December 09, 2023, SEBI published a consultation paper for public comments on the framework for issuance of subordinate units by REITs and InvITs to sponsor(s), their associates, and the sponsor group. In view of the public comments received SEBI has issued a Consultation Paper on January 10, 2024, inviting public comments on the following additional proposals pertaining to the framework for issuance of subordinate units by REITs and InvITs:
- Specification of a ceilingon the extent of subordinate units that can be issued;
- Bringing uniformity in the nature of rights conferredon subordinate units;
- Dealing with changes in terms and conditionsof the subordinate units post-issuance
Comments on the consultation paper were required to be sent latest by January 31, 2024.
The link of the aforesaid Consultation Paper is as follows:
5. Foreign investment in Alternative Investment Funds (AIFs)
The Prevention of Money Laundering (Maintenance of Records) Rules, 2005 (“PMLA Rules”), have been amended by the Government of India, inter-alia, to revise the thresholds for determining the beneficial ownership.
Accordingly, pursuant to amendments to PMLA Rules, SEBI vide Circular SEBI/HO/AFD/PoD1/CIR/2024/2 dated January 11, 2024 (“the Circular”), modified para 4.1.2 of Chapter 4 of SEBI Master Circular dated July 31, 2023 for Alternative Investment Funds (AIF). The provisions of the Circular shall come into force with immediate effect.
In the said para 4.1.2, the reference to Underlying Investors contributing 25% or more in the corpus of the Investor of AIF or the Underlying Investors identified based on control of the Investor of AIF has been replaced with Beneficial Owner as determined in Rule 9(3) of the PMLA Rules.
Accordingly, the investor of AIF, or its beneficial owner as determined in Rule 9(3) of the PMLA Rules, shall not be a person(s) mentioned in the Sanctions List notified from time to time by the United Nations Security Council and is not a resident in the country identified in the public statement of Financial Action Task Force as:
- a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or
- a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force (FATF) to address the deficiencies.
In case an investor who has been already on-boarded to the scheme of an AIF, does not meet the revised condition as specified above, the manager of the AIF shall not drawdown any further capital contribution from such investor for making an investment, until the investor meets the said condition.
The link of the aforesaid Circular is as follows:
6. Consultation Paper on Interim recommendations of the Expert Committee for facilitating Ease of Doing Business and harmonization of the provisions of ICDR and LODR Regulations
Pursuant to the Union Budget Announcement for FY 2023-24, to simplify, ease and reduce cost of compliance, an Expert Committee chaired by Shri S.K. Mohanty, ex-Whole Time Member, SEBI was set up to inter-alia review the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR) and SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR).
This Expert Committee was set up to facilitate the Ease of Doing Business for listed entities in India, bringing in clarity and reducing the overall compliance burden, including the cost of compliance while effectively balancing investor protection and compliance with the applicable laws.
Further, SEBI vide press release dated October 04, 2023, sought comments on various SEBI Regulations including the LODR and ICDR Regulations. The comments received from the public are being deliberated in the Working Groups formed by the Expert Committee.
Meanwhile, the Expert Committee has submitted a Report containing interim recommendations to facilitate ease of doing business under the LODR & ICDR Regulations.
Accordingly, SEBI on January 11, 2024, published a Consultation Paper for public comments containing the following interim recommendations of the Expert Committee:
1. LODR Regulations:
- Applicability of the regulations based on market capitalization;
- Limit of membership and Chairmanship of Committees for a director;
- Filling up of vacancies of Key Managerial Personnel;
- Timeline for prior intimation of Board Meetings;
- Gap between meetings of the Risk Management Committee.
2. ICDR Regulations:
- Inclusion of equity shares received on conversion or exchange of fully paid-up Compulsory Convertible Securities and Depository Receipts for Minimum Promoters’ Contribution;
- Non-individual shareholders to be permitted to contribute towards Minimum Promoters’ Contribution without being identified as a Promoter
- Thresholds for increase or decrease in issue size triggering re-filing of draft offer documents;
- Flexibility to extend the bid/offer closing date on account of force majeure events minimum by one day instead of the present requirement to extend by a minimum of three days.
- The comments/suggestions along with the rationale should be sent only by email to consultationcfd@sebi.gov.in in the prescribed format, no later than February 01, 2024.
The link for the aforesaid Consultation Paper is as follows:
The Link for the Expert Committee report is as follows:
sebi.gov.in/sebi_data/commondocs/jan-024/Interim_Recommendations_of_the_Expert_Committee_p.pdf
The Link for the Summary of Interim Recommendations is as follows:
7. Ease of Doing Investments by Investors - Facility of voluntary freezing/ blocking of Trading Accounts by Clients
Stock Broking Industry in India has been digitalized and trading is done by investors online using the login IDs and passwords provided by the Trading Members.
One of the cons of a digital regime is that the stakeholders are always prone to cybercrime and unlike any other digital facility investors have observed suspicious activities in their trading accounts.
Accordingly, there is an urgent need to introduce a facility for blocking trading accounts as available for blocking ATMs and Credit Cards. A similar facility viz. blocking/ freezing of demat accounts is already available, however the same has not been introduced for trading accounts.
In this regard, according to consultation with the Brokers’ Industry Standards Forum (ISF), a framework for Trading Members to provide the facility of voluntary freezing/ blocking the online access of the trading account to the clients on account of suspicious activities will be laid down on or before April 01, 2024, by the ISF, under the aegis of stock exchanges, in consultation with SEBI.
The Framework shall contain necessary guidelines with respect to the following:
1. Detailed policy for voluntary freezing/ blocking the online access of the trading account of the client including the following:
- modes through which a client can request/communicate to the Trading Member for voluntarily blocking the trading accounts;
- issuing of acknowledgment to the clients on receipt of the message;
- period within which the request shall be processed and the trading account shall be frozen/blocked.
2. Action to be taken by the Trading Member pursuant to the receipt of the request for freezing/blocking of the trading account;
3. Process for re-enabling the client for trading/transfers.
4. Intimation to be provided by the trading member to the clients w.r.t. introduction of the facility to block the trading accounts.
Further, the Stock Exchanges shall ensure that the guidelines so issued under the aforesaid Framework are implemented by Trading Members with effect from July 01, 2024. A compliance report to this effect shall be submitted to SEBI by Stock Exchanges latest by August 31, 2024.
The link of the aforesaid Circular is as follows:
8. Guidelines for AIFs with respect to holding their investments in dematerialized form and appointment of a custodian
SEBI on January 05, 2024, notified the SEBI (Alternative Investment Funds) (Amendment) Regulations, 2024 to further amend the SEBI (Alternative Investment Funds) Regulations, 2012 (“the Regulations”), with respect to AIFs holding their investments in dematerialized form and appointment of custodian.
In this regard, SEBI vide Circular SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2024/03 dated January 12, 2024, issued a guideline that specifies the following:
1. Holding investments of AIFs in dematerialized form:
- Any investment made by an AIF on or after October 01, 2024, shall be held in dematerialized form only, irrespective of whether the investment is made directly in the investee company or is acquired from another entity.
- The investments made by an AIF before October 01, 2024, are exempted from the requirement of being held in dematerialized form, except in the following cases:
- Investee company of the AIF has been mandated under applicable law to facilitate the dematerialization of its securities;
- The AIF, on its own, or along with other SEBI registered intermediaries/entities which are mandated to hold their investments in dematerialized form, exercises control over the investee company.
The investments referred to above shall be held in dematerialized on or before January 31, 2025.
- Scheme of an AIF whose tenure (not including the permissible extension of tenure) ends on or before January 31, 2025, and the Scheme of an AIF which is in extended tenure as of the date of the Circular is not required to hold investments in dematerialized form.
2. Appointment of custodian for AIFs:
- The custodian for a scheme of an AIF shall be appointed prior to the date of the first investment of the scheme.
- Existing schemes of Category I and II AIFs having a corpus less than or equal to INR 500 crores and holding at least one investment as on the date of this circular shall appoint a custodian on or before January 31, 2025.
- In case of AIFs with custodians that are associates of their manager or sponsor, managers of such AIFs shall ensure compliance with Regulation 20(11A) of the Regulations on or before January 31, 2025.
3. Reporting of investments of AIFs under custody:
- The pilot Standard Setting Forum for AIFs (‘SFA’), in consultation with SEBI, to formulate implementation standards for reporting data on investments of AIFs that are under custody with the custodian. Such standards shall specify the format and modalities of reporting of data by the manager of AIF to the custodian and subsequently, by the custodian to SEBI.
- Managers of AIFs and custodians shall adopt and adhere to such implementation standards, formulated by the SFA in consultation with SEBI. Such standards shall be published on the websites of the industry associations that are part of the SFA, i.e., Indian Venture and Alternate Capital Association (IVCA), PE VC CFO Association, and Trustee Association of India, within 60 days of issuance of this circular.
The trustee/sponsor of AIF should ensure that the ‘Compliance Test Report’ prepared by the manager, as per SEBI Master Circular dated July 31, 2023, includes compliance with the provisions of the Circular.
The information necessary to ascertain compliance with the provisions of this Circular shall be incorporated in the format for quarterly reporting by AIFs and the manager of AIF shall provide the requisite information accordingly while submitting the quarterly report to SEBI.
The link for the aforesaid Circular is as follows:
9. Consultation Paper on providing flexibility to Alternative Investment Funds (AIFs), Venture Capital Funds (VCFs), and their investors to deal with unliquidated investments of their schemes beyond the expiry of tenure
SEBI issued a Consultation Paper to seek comments from the public on the proposals to provide flexibility to AIFs registered under the SEBI (AIF) Regulations, 2012, VCFs registered under the erstwhile SEBI (VCF) Regulations, 1996, and their investors to deal with unliquidated investments of their schemes beyond the expiry of tenure. The comments/suggestions are as per the specified format, latest by February 02, 2024.
The link for the aforesaid Consultation Paper is as follows:
10. Gazette Notification for renewal of reorganization of AMC Repo Clearing Ltd (ARCL)
SEBI vide Notification dated January 15, 2024, granted renewal of recognition to AMC Repo Clearing Limited, for one year commencing on January 17, 2024, and ending on January 16, 2025.
However, the recognition is granted subject to the condition that the Clearing Corporation shall not undertake any activity except that of clearing and settling of transactions in repo and reverse repo in the debt securities that are dealt with or traded on a recognized stock exchange.
The link for the aforesaid Notification is as follows:
11. Consultation Paper on a proposal to enhance trust in the Alternative Investment Funds (‘AIF’) ecosystem to facilitate Ease of Doing Business measures
SEBI vide Consultation Paper dated January 19, 2024, issued proposals to enhance trust in the Alternative Investment Funds (‘AIF’) ecosystem to facilitate ease of doing business.
The AIF industry has registered robust growth over the years, however, there are a number of instances showing that AIFs are being structured to facilitate circumvention of different financial sector regulations, thereby eroding trust in the system. To ensure sustained capital formation, it is important to take steps to restore the trust and prevent such circumvention, while at the same time ensuring minimal impact on legitimate AIF investments.
This consultation paper proposes to introduce a requirement that AIFs, Managers of AIFs, and the Key Management Personnel of AIFs and their managers ensure that AIFs do not facilitate circumvention of extant financial sector regulations. The specific verifiable standards to demonstrate adherence to this obligation are proposed to be formulated by the pilot Industry Standards Forum for AIFs, in consultation with SEBI. The enhanced trust that should result from such a process, along with a process to verify adherence to the accompanying standards, would provide regulatory comfort in considering other Ease of Doing Business (EoDB) proposals relating to AIFs that are under examination with SEBI.
The comments/suggestions may be provided preferably through an online web-based form through the link as provided in this consultation paper by February 11, 2024.
The link for the aforesaid consultation Paper is as follows:
12. Framework for Offer for Sale (OFS) of Shares to Employees through Stock Exchange Mechanism
SEBI vide Circular SEBI/HO/MRD/MRD-PoD-3/P/CIR/2024/6 dated January 23, 2024, issued a framework for OFS of shares to employees through Stock Exchange Mechanism and it shall come into effect from January 30, 2024.
The existing procedure of OFS to employees is happening outside the stock exchange mechanism. SEBI observed that the said procedure is time-consuming, and involves additional costs and multiple activities. To enhance efficiency, ease of compliance and reduce cost, SEBI has decided that the promoters can also offer the shares to employees in OFS through the Stock Exchange Mechanism.
The procedure for OFS to employees through the Stock Exchange Mechanism is an additional option to the existing procedure of OFS to employees outside the exchange mechanism.
The promoters shall transfer the total shares of OFS on T-1 day including shares reserved for the “Employee” category, to the designated clearing corporation.
For employee OFS, a certain number of shares shall be reserved for the employees. Employees shall place bids only at the cut-off price of T+1 day. The maximum bid amount shall be INR 5,00,000. Each employee is eligible for allotment of equity shares up to INR 2,00,000. The bid book of the “Employee” Category shall be segregated from the Retail Category book for allotment. The PAN mismatched bids shall be rejected.
The link for the aforesaid Circular is as follows
SEBI | Framework for Offer for Sale (OFS) of Shares to Employees through Stock Exchange Mechanism
13. Extension of timeline for verification of market rumors by listed entities
SEBI vide Circular SEBI/HO/CFD/CFD-PoD-2/P/CIR/2024/7 dated January 25, 2024, extended the timeline for verification of market rumors by listed entities.
The proviso to Regulation 30(11) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”) requires the top 250 listed entities by market capitalization to mandatorily verify and confirm, deny, or clarify market rumors from August 01, 2024, and top 100 listed entities by market capitalization from February 1, 2024.
Since the industry standards are under finalization and certain amendments to LODR Regulations the implementation of the aforesaid provision has been differed as follows
For the top 100 listed entities by market capitalization, the effective date is June 1, 2024, and
For top 250 listed entities by market capitalization, the effective date is December 1, 2024.
The link for the aforesaid Circular is as follows:
14. Trading Window closure period under Clause 4 of Schedule B read with Regulation 9 of SEBI (Prohibition of Insider Trading) Regulations, 2015 (“PIT Regulations”): Extending framework for restricting trading by Designated Persons (“DPs”) by freezing PAN at security level to all listed companies in a phased manner
On January 30, 2024, BSE vide Notice date 20240130-6 and NSE vide Circular No. NSE/CML/2024/03 extended the framework for restricting trading by Designated Persons (“DPs”) by freezing PAN at the security level to all listed companies in a phased manner.
- In accordance with the SEBI circular, the outlined framework for restricting trading by designated persons through freezing PAN at the security level will also apply to the remaining equity-listed companies on BSE, NSE, and MSEI.
- Companies that qualify must include all equity ISINs and ISINs that are convertible into equity.
- Listed entities are required to designate one of the depositoriesas its designated depository and provide the information including PAN of Promoter(s), promoter group, director(s), and designated person(s) in the manner as specified by the depositories according to SEBI circular no – SEBI/HO/ISD/ISD/CIR/P/2020/168 dated September 9, 2020.
- Further, listed entities shall update their designated person listin the manner specified by the depositories on a regular basis.
This circular shall come into force for trading window closure with effect from April 1, 2024.
The link for the aforesaid Circular on BSE is as follows:
https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20240130-6