SEBI Nov 2023 - AmitaDesai

Amendments in the Securities regulations

SEBI Updates November 2023

1. Simplification and streamlining of Offer Documents of Mutual Fund Schemes

SEBI in consultation with the Association of Mutual Funds in India (“AMFI”), to enhance the ease of preparation of the Scheme Information Document by mutual funds and increase its readability for investors, undertook an exercise to revamp the format of the SID.

Accordingly, on November 01, 2023, SEBI vide Circular No. SEBI/HO/IMD/IMD-RAC-2/P/CIR/2023/000175 (“the Circular”) based on the suggestions of AMFI and the recommendations of the Mutual Fund Advisory Committee, simplified and rationalized the format of SID. The revised format, detailed in Annexure A of the Circular, aims to streamline the dissemination of relevant information to investors and facilitate periodic updates by mutual funds.

Applicability:
The revised format for SID, Key Information Memorandum (“KIM”), and Statement of Additional Information (“SAI”) shall be adopted as follows:

Updated format for SID/KIM/SAI to be implemented w.e.f. April 01, 2024.
Draft SIDs to be filed with SEBI on or before March 31, 2024, or SIDs already filed with SEBI (final observations yet to be issued) or SIDs for which the final observations have already been received from SEBI (if launched on or before March 31, 2024), can use the old format of SID, provided that the SIDs are updated as per the timeline mentioned at (c) below
For Existing SIDs – by April 30, 2024, with data as on March 31, 2024.

All updated/revised SIDs shall be made available on the website of SEBI/AMFI/AMCs within the timelines specified above.

Further, to give effect to the revisions in the SID, certain clauses including the SID format in the SEBI Master circular dated May 19, 2023 stand modified as specified in the Circular.

In line with the new SID format, AMFI shall carry out the necessary changes in the formats of KIM and SAI in consultation with SEBI, within two months from the date of the circular.

The link for the Circular mentioned above is as follows:
https://www.sebi.gov.in/legal/circulars/nov-2023/simplification-and-streamlining-of-offer-documents-of-mutual-fund-schemes_78665.html

2.Procedural framework for dealing with unclaimed amounts lying with entities having listed non-convertible securities and manner of claiming such amounts by investors

Regulation 61A(2) of SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 (“SEBI LODR”) mandates entities having listed non-convertible securities to transfer interest/dividend/redemption amount which has not been claimed within 30 days from the due date of interest/dividend/redemption payment to an escrow account within 7 days from the expiry of said 30 days.

Further, Regulation 61A(3) mandates entities having listed non-convertible securities which has transferred any amount to an escrow account and which remains unclaimed for 7 years, to transfer such unclaimed amount to the ‘Investor Education and Protection Fund (IEPF)’ constituted in terms of section 125 of the Companies Act, 2013. However, the listed entities having listed non-convertible securities and which do not fall within the definition of “company” under the Companies Act, 2013 and the Rules made thereunder, shall transfer such amount remaining unclaimed for 7 years to the Investor Protection and Education Fund (IPEF) created by SEBI in terms of section 11 of the SEBI Act, 1992.

Regulation 61A(4) provides that the unclaimed amount of a person that has been transferred to the IPEF in terms of SEBI LODR 2015, may be claimed in such manner as may be specified by SEBI.

To define the manner of handling the unclaimed amounts lying, in particular, in the Escrow Accounts of the listed entities that are not companies, transfer of such amounts to the IPEF, and claim thereof by the investors, necessary amendments were made in the SEBI (Investor Protection and Education Fund) Regulations, 2009.

In view of the above, to standardize the process to be followed by a listed entity for the transfer of amount to Escrow Account and by the investors for making claims thereof, to define the manner of handling the unclaimed amounts lying in the Escrow Accounts of the listed entities which are not companies, transfer of such amounts to the IPEF and claim thereof by the investors, SEBI on November 08, 2023, vide Circular No. SEBI/HO/DDHS/DDHS-RAC-1/P/CIR/2023/176 (“the Circular”) introduced the following frameworks as Annexures A & B to the circular as below:
i.Annex-A – Framework for transfer of unclaimed amounts by the listed entities to Escrow Accounts and claim thereof by investors;
ii.Annex-B – Framework for transfer of unclaimed amounts from the Escrow Account of the listed entity (which are not companies) to IPEF and claim thereof by the investors.

The Circular further mandates the following:
i.Listed entities having unclaimed amounts in the Escrow Account for less than 7 years, as on February 29, 2024, shall start computing interest, as per provisions of Annex – A, from March 1, 2024.
ii.Listed entities (which are not companies) and have unclaimed amounts in the Escrow Account for more than 7 years, as on February 29, 2024, shall transfer the unclaimed amounts of the investors to IPEF, in compliance with the provisions of Annex – B, on or before March 31, 2024.

The link for the Circular mentioned above is as follows:
https://www.sebi.gov.in/legal/circulars/nov-2023/procedural-framework-for-dealing-with-unclaimed-amounts-lying-with-entities-having-listed-non-convertible-securities-and-manner-of-claiming-such-amounts-by-investors_78988.html

3.Procedural framework for dealing with unclaimed amounts lying with Real Estate Investment Trusts (REIT) and manner of claiming such amounts by unitholders

SEBI (Real Estate Investment Trusts) Regulations, 2014 (‘REIT Regulations’) mandates the following:

Reg. 18(6)(b): not less than 90% of Net Distributable Cash Flows (NDCFs) of the REIT shall be distributed to the unitholders;
Reg. 18(6)(c): such distribution shall be declared and made not less than once every 6 months in every financial year. Further, the distributions shall be made not later than 15 days from the date of declaration;
Reg. 18(6)(f): any amount remaining unclaimed or unpaid out of the distributions declared by a REIT in terms of Reg. 18(6)(c), shall be transferred to the ‘Investor Protection and Education Fund’ (“IPEF”) constituted by SEBI in terms of section 11 of the SEBI Act, 1992 in such manner as may be specified by SEBI;
Reg. 18(6)(g): the unclaimed or unpaid amount of a person that has been transferred to the IPEF in terms of Reg. 18(6)(f), may be claimed in such manner as may be specified by the Board.

Accordingly, to define the manner of handling the unclaimed amounts lying with the REITs, transfer of such amounts to the IPEF, and claim thereof by the unitholders, necessary amendments were made to the SEBI (Investor Protection and Education Fund) Regulations, 2009 (IPEF Regulations).

In view of the above, SEBI on November 08, 2023, vide Circular No. SEBI/HO/DDHS/DDHS-RAC-1/P/CIR/2023/177 (“the Circular”), has provided a framework defining the procedure to be followed by a REIT for transfer of unclaimed amounts, initially to an Escrow Account and subsequently, to the IPEF and claim thereof by a unitholder, as Annexure – A to the Circular.

Further, the Circular mandates that REITs having unclaimed amounts for less than 7 years, as on February 29, 2024, start computing interest, as per provisions of Part I of Annexure – A to the Circular, from March 1, 2024.

For REITs holding unclaimed amounts for more than 7 years, as on February 29, 2024, shall transfer the unclaimed amounts of the unitholders to IPEF, in compliance with the provisions of Part II of Annexure – A to the Circular, on or before March 31, 2024.

The provisions of this Circular shall come into effect from March 01, 2024.

The link for the Circular mentioned above is as follows:
https://www.sebi.gov.in/legal/circulars/nov-2023/procedural-framework-for-dealing-with-unclaimed-amounts-lying-with-real-estate-investment-trusts-reits-and-manner-of-claiming-such-amounts-by-unitholders_78992.html

4.Procedural framework for dealing with unclaimed amounts lying with Infrastructure Investment Trusts (InvITs) and manner of claiming such amounts by unitholders

SEBI (Infrastructure Investment Trusts) Regulations, 2014 (‘InvIT Regulations’) mandates the following:

Reg. 18(6)(b): not less than 90% of Net Distributable Cash Flows (NDCFs) of the InvIT shall be distributed to the unitholders;
Reg. 18(6)(c): such distributions shall be declared and made not less than once every 6 months in every financial year in case of publicly offered InvITs and not less than once every year in case of privately placed InvITs. Further, the distributions shall be made not later than 15 days from the date of declaration;
Reg. 18(6)(e): any amount remaining unclaimed or unpaid out of the distributions declared by an InvIT in terms of Reg. 18(6)(c), shall be transferred to the ‘Investor Protection and Education Fund’ (“IPEF”) constituted by SEBI in terms of section 11 of the SEBI Act, 1992 in such manner as may be specified by SEBI;
Reg. 18(6)(f): the unclaimed or unpaid amount of a person that has been transferred to the IPEF in terms of Reg. 18(6)(e), may be claimed in such manner as may be specified by the Board.

Accordingly, to define the manner of handling the unclaimed amounts lying with the InvITs, transfer of such amounts to the IPEF, and claim thereof by the unitholders, necessary amendments were made to the SEBI (Investor Protection and Education Fund) Regulations, 2009 (IPEF Regulations).

In view of the above, SEBI on November 08, 2023, vide Circular No. SEBI/HO/DDHS/DDHS-RAC-1/P/CIR/2023/178 (“the Circular”), has provided a framework defining the procedure to be followed by an InvIT for transfer of unclaimed amounts, initially to an Escrow Account and subsequently, to the IPEF and claim thereof by a unitholder, as Annexure – A to the Circular.

Further, the Circular mandates that InvITs having unclaimed amounts for less than 7 years, as on February 29, 2024, start computing interest, as per provisions of Part I of Annexure – A to the Circular, from March 1, 2024. For InvITs which shall be holding unclaimed amounts for more than 7 years, as on February 29, 2024, shall transfer the unclaimed amounts of the unitholders to IPEF, in compliance with the provisions of Part II of Annexure – A to the Circular, on or before March 31, 2024.

The provisions of this Circular shall come into effect from March 01, 2024

The link for the Circular mentioned above is as follows:
https://www.sebi.gov.in/legal/circulars/nov-2023/procedural-framework-for-dealing-with-unclaimed-amounts-lying-with-infrastructure-investment-trusts-invits-and-manner-of-claiming-such-amounts-by-unitholders_78990.html

5.India International Trade Fair 2023

On November 14, 2023, SEBI vide Press Release No. 26/2023, informed that SEBI in association with BSE, NSE, MCX, NCDEX, CDSL, NSDL, AMFI, ANMI, and CPAI had set up a Pavilion ‘BHARAT KAA SHARE BAZAAR’ in the 42nd India International Trade Fair, 2023 (14-27 November 2023), New Delhi. The setting up of the said pavilion was part of the SEBI’s endeavor to showcase the well-regulated securities market of India as well as to spread the message of financial literacy and investor awareness.

The theme of the event was “VAISHVIK SAMRIDHI KA ADHAAR, BHARAT KA SHARE BAZAR” which was aligned with the G20 theme of “VASUDHEV KUTUMBKAM”. Shri Kamlesh Chandra Varshney, Whole Time Member, SEBI inaugurated the event on November 14, 2023, in the presence of Securities Market Participants.

During the exhibition at ITPO, SEBI, MIIs, and Industry Associations activities such as talk shows by market experts, skits, muppet shows, and other live activities to spread investor education and awareness were organized.

Further, the Press Release also highlighted the many investor-friendly measures implemented by SEBI through the use of technology, measures taken for better disclosures and investor awareness including cautioning the public against illegal money mobilization schemes from time to time, reforms in Mutual Funds space such as strengthening risk-o-meter tool help investors make informed decisions about their investments, introduction of programs for enhancing investor education, online, dispute resolution and opening of investor services centers, etc.

The link for the aforesaid Press Release is as follows:
https://www.sebi.gov.in/media-and-notifications/press-releases/nov-2023/india-international-trade-fair-2023_79089.html

6.Simplified norms for processing investor service requests by RTAs and norms for furnishing PAN, KYC details, and Nomination

SEBI, vide circular no. SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/37 dated March 16, 2023 (now rescinded due to issuance of Master Circular for Registrars to an Issue and Share Transfer Agents dated May 17, 2023) had simplified norms for processing investor’s service request by RTAs and for furnishing PAN, KYC details and Nomination.

Based on representations received from the Registrars’ Association of India, feedback from investors, and to mitigate unintended challenges on account of freezing of folios and referring frozen folios to the administering authority under the Benami Transactions (Prohibitions) Act, 1988 and Prevention of Money Laundering Act, 2002, it has been decided to do away with the above provisions.

Accordingly, on November 17, 2023, vide Circular No. SEBI/HO/MIRSD/POD-1/P/CIR/2023/181 (“the Circular”) Para 9 of Section V of the Master Circular for Registrars to an Issue and Share Transfer Agents dated May 17, 2023, has been amended as follows:

Reference to the term ‘freezing/ frozen’ has been deleted;
Referral of folios by the RTA/listed company to the administering authority under the Benami Transactions (Prohibitions) Act, 1988, and Prevention of Money Laundering Act, 2002, has been done away with.

Para 19 of Section V of the Master Circular inter-alia, provides for the freezing of folios without PAN, KYC details, and Nomination and referral of frozen folios to the administering authority under the Benami Transactions (Prohibitions) Act, 1988, and/or Prevention of Money Laundering Act, 2002, if they continue to remain frozen as on December 31, 2025.

The Circular shall come into force with immediate effect.

The link for the Circular mentioned above is as follows:
https://www.sebi.gov.in/legal/circulars/nov-2023/simplified-norms-for-processing-investor-s-service-requests-by-rtas-and-norms-for-furnishing-pan-kyc-details-and-nomination_79167.html

7.Consultation paper on providing flexibility in Provisions relating to ‘Trading Plans’ under the SEBI (Prohibition of Insider Trading) Regulations, 2015 (“PIT Regulations 2015”):

Insider Trading i.e. trading when in possession of Unpublished Price Sensitive Information (“UPSI”) is prohibited under the PIT Regulations 2015. However, the insiders are allowed to trade, provided they do not have UPSI and are subject to compliance with other provisions of PIT Regulations, 2015. Amongst the insiders are Senior Management and Key Managerial Personnel (“KMP”) who may be perpetually in possession of UPSI and due to such possession coupled with mandatory trading window closures for financial results, such perpetual insiders have a very small window for carrying out trades, if required. Such perpetual insiders may need to trade frequently for purposes such as creeping acquisitions, compliance with minimum public shareholding norms, etc. While certain defences for trading while in possession of UPSI like inter-se transfer, exercise of ESOPs, etc. are provided under PIT Regulations, 2015, such defences are limited.

Accordingly, the concept of Trading Plans (“TP”) was introduced in PIT Regulations 2015 to enable perpetual insiders to trade in securities subject to the following compliances:

Minimum cool-off period of 6 months from the date of public disclosure of TP;
TP to cover a minimum 12-month period;
Disclosure to the stock exchange prior to implementation (actual trading);
To be irrevocable i.e. mandatory implementation/execution of TP;
No deviation from the actual TP disclosed.

Such compliances rendered TPs unattractive as mandatory execution puts the insiders in an economically disadvantageous position and it is difficult to plan trades for 12 months given the uncertain nature of the market.

Also, the instances of adoption of TPs by insiders disclosed to the stock exchanges over the past 5 financial years are in stark contrast to the number of listed companies in India and the large number of insiders who deal with UPSI in their respective companies. The number of said instances is abysmally low indicating that TPs are rarely used.

Further, SEBI, vide a consultation paper dated May 18, 2023, proposed an amendment to the definition of UPSI to include material events as defined under Regulation 30 of the LODR Regulations which will render the trading window closed for a longer period than the existing scenario thus making it more difficult for perpetual insiders to trade in securities.

In view of the above on July 03, 2023, a Working Group (“WG”) comprising officials of SEBI, stock exchanges, and market participants was constituted to review the provisions of TP in the PIT Regulations, 2015. The terms of reference of WG were to review the TP provisions to facilitate and increase the adoption of TPs by perpetual insiders.

The recommendations of the WG are as follows:

Cool-off period: The minimum cool-off period between disclosure of TP and implementation of TP may be reduced to 4 months from 6 months.
Minimum Coverage period: The minimum coverage period requirement may be reduced to 2 months from 12 months.
Black-out period: The requirement of a black-out period for trading in TP may be done away with.
d.Price Limit to Protect Insider from Significant Adverse Price Fluctuation: The insider shall have flexibility, during the formulation of TP, to provide price limits i.e. upper price limits for buy trades and lower price limits for sell trades. Such price limit shall be within +/-20% of the closing price on the date of submission of TP. If the price of the security, during execution, is outside the price limit set by the insider, the trade shall not be executed. If no price limit is opted for, the trade has to be undertaken irrespective of the prevailing price.
Contra-trade restrictions: The provision exempting trades executed under TP from the applicability of contra-trade restrictions to be omitted i.e. contra-trade provisions shall be applicable on trades executed under TP as well.
Timeline for Disclosure of TP: Disclosure of TP to stock exchanges is proposed to be done in two days from the date of approval of TP.
Format for reporting details of TP: A suitable format may be specified in consultation with market participants.
Disclosure of Personal Details of Insider in TP: The WG explored and recommended the following 3 alternatives for protecting privacy of insiders while disclosing the TP to stock exchanges:
Mask personal details (Name, Designation, PAN) of the Insider in the TP;
ai.Continue the existing manner of TP disclosure with personal details (Name, Designation, PAN) of the Insider;
bi.Make two separate disclosures of TP – (a) full (confidential) disclosure to the stock exchange and (b) disclosure without personal details to the public through the stock exchange

The link for the aforesaid Consultation Paper is as follows:
https://www.sebi.gov.in/reports-and-statistics/reports/nov-2023/consultation-paper-on-providing-flexibility-in-provisions-relating-to-trading-plans-under-the-sebi-prohibition-of-insider-trading-regulations-2015_79317.html

8.SEBI Board Meeting:

On November 25, 2023, the 203rd Meeting of the SEBI Board (“the Board”) was held in Mumbai. SEBI on November 25, 2023, vide Press Release No. 27/2023 informed the matters, inter-alia approved by the Board which is as follows:

i. Flexibility in the framework for Social Stock Exchange (SSE):
To provide impetus to fundraising by Not-for-Profit Organizations (NPOs) on the SSE, the Board inter-alia approved the following:

Reduction in minimum issue size from Rs. 1 Crore to Rs. 50 lakhs in case of public issuance of Zero Coupon Zero Principal Instruments (ZCZP);
Reduction in minimum application size from Rs 2 lakh to Rs. 10,000 in case of public issuance of ZCZP, thereby enabling wider participation of subscribers including retail subscribers;
Changing the nomenclature of “Social Auditor” to “Social Impact Assessor” to convey a positive approach towards the social sector;
Disclose past social impact reports in the fundraising document as per their existing practice subject to disclosure of key parameters such as number of beneficiaries, cost per beneficiary, and administrative overhead;
Permitting entities registered under sections 10(23C) and 10(46) of the Income Tax Act, 1961 as entities eligible for registration and fundraising through the issuance and listing of ZCZP on SSE.

ii.Introduction of Regulatory Framework for Index Providers:
To foster transparency and accountability in the governance and administration of financial benchmarks in the securities market, the Board approved a regulatory framework for Index Providers.

The proposed regulations will provide a framework for the registration of Index Providers that license ‘Significant Indices’ and such regulations shall be notified by SEBI based on objective criteria. Further, the regulatory framework which is by the principles of the International Organization of Securities Commissions (IOSCO Principles) for Financial Benchmarks shall only apply to ‘Significant Indices’.

iii. Facilitation of Small & Medium REITs (“SM REITs”) – Amendments to SEBI (Real Estate Investment Trusts) Regulations, 2014 (“REIT Regulations”) for creation of new regulatory framework:
At present Real Estate Investment Trusts are required to have a minimum asset value of Rs. 500 crores. Accordingly, to create a regulatory framework for the facilitation of Small & Medium Real Estate Investment Trusts (“SM REITs”) with an asset value of at least Rs. 50 crores vis-à-vis minimum asset value of Rs. 500 crores for existing REITs, the SEBI Board (“the Board”) approved amendments to SEBI (Real Estate Investment Trusts) Regulations, 2014.

The proposed regulatory framework approved by the Board for SM REITs provides for the following:

Structure of SM REITs;
Migration of existing structures meeting certain specified criteria;
Obligations of the investment manager including net worth;
Experience and minimum unitholding requirement;
Investment conditions;
Minimum subscription;
Distribution norms;
Valuation of assets, etc.

Further, post the proposed regulatory framework comes into effect the SM REITs shall have the ability to create separate scheme(s) for owning real estate assets through special purpose vehicle(s) constituted as companies.

iv. Amendment to SEBI (Alternative Investment Funds) Regulations, 2012, to facilitate ease of compliance and strengthen protection of interest of investors in Alternative Investment Funds:
SEBI to facilitate ease of compliance and strengthen investor protection in Alternative Investment Funds (‘AIFs’) approved the following proposals:
a. Any fresh investment made by an AIF, beyond September 2024, shall be held in dematerialized form;
b. The requirement of holding the investment in dematerialized form shall not apply to existing investments made by AIFs except the following:

Investee company has been mandated under applicable law to facilitate dematerialization of its securities; and,
Investments where the AIF, on its own, or along with other SEBI registered intermediaries/entities which are mandated to hold their investment in dematerialized form, has control in the investee company;

c. The requirement of holding the investment in dematerialized form shall exempted for investments held by:

Liquidation schemes of AIFs;
Schemes of an AIF whose tenure (not including the permissible extension of tenure) ends within one year from the date of issuance of necessary notification in this regard; and,
Schemes of an AIF whose tenure ends within one year from the date of issuance of necessary notification in this regard but which are in extended tenure as on the date of issuance of the notification.

d. The mandate for appointment of a custodian, currently applicable to schemes of Category III AIFs and schemes of Category I and II AIFs with a corpus of more than Rs. 500 Crore, shall be extended to all AIFs. The custodian may be an associate of the manager or sponsor of the AIF, subject to conditions similar to those prescribed under SEBI (Mutual Funds) Regulations, 1996 for permitting related party of sponsor of a Mutual Fund to act as its custodian.

The link for the aforesaid Press Release is as follows:
https://www.sebi.gov.in/media-and-notifications/press-releases/nov-2023/sebi-board-meeting_79337.html

9.Consultation Paper on changes in the regulatory framework for Special Situation Funds, a sub-category of Category I Alternative Investment Funds, necessary to facilitate Special Situation Funds to acquire stressed loans in terms of Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021

On November 28,2023, SEBI issued a Consultation Paper proposing changes to the regulatory framework for Special Situation Funds (SSFs) a subcategory of Category I Alternative Investment Funds (AIFs), to facilitate SSFs to acquire stressed loans in terms of Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 (‘RBI Master Directions’).

Due to stressed loans Indian financial system requiring significant capital infusion in Banks, Non-Banking Financial Companies (‘NBFCs’), etc. Such infusion necessitated exploring Alternative Investment Funds (‘AIFs’) as a potential source of risk capital to supplement the efforts of Asset Reconstruction Companies (‘ARCs’) in resolution of stressed loans. This also helps to release the capital of Banks, NBFCs, etc. locked in stressed loans thus making them available for lending to the desired sectors. Further infusion of capital in such manner help the underlying companies in distress, which are unable to function optimally and generate value for stakeholders due to over-leveraging, but have potential to turnaround.

In view of the above, SEBI after deliberation in its meeting held on December 28, 2021, approved the proposal to introduce SSF as a new sub-category of Category I AIFs which shall invest in special situation assets including stressed loans. SSF may acquire stressed loan in terms of Clause 58 of RBI Master Directions, upon inclusion of SSF in the Annex of RBI Master Directions.

Accordingly, framework to enable SSFs to acquire stressed loans was referred to RBI for their concurrence / comments for notifying SSFs in Annex of RBI Master Directions.

RBI has communicated the following requirements, which are also the issues for consideration in this Consultation Paper, in the framework for SSFs to enable RBI to include SSF in the Annex of RBI Master Directions:

a.definition of ‘special situation assets’;
b.eligibility of investors in SSFs in terms of Section 29A of Insolvency and Bankruptcy Code, 2016;
c.restrictions with regard to investment in connected entities;
d.minimum holding period and subsequent transfer of loans;
e.monitoring of SSFs;
f.supervision of SSFs.

Comments on the above issues for consideration as per format specified in the consultation paper shall be sent latest by December 27, 2023.

The link for the aforesaid Consultation Paper is as follows:
https://www.sebi.gov.in/reports-and-statistics/reports/nov-2023/consultation-paper-on-changes-in-the-regulatory-framework-for-special-situation-funds-a-sub-category-of-category-i-alternative-investment-funds-necessary-to-facilitate-special-situation-funds-to-acq-_79425.html

10.Framework for restricting trading by Designated Persons (“DPs”) by freezing PAN at security level:

SEBI (Prohibition of Insider Trading) Regulations, 2015 (“PIT Regulations”) provides that the Designated Persons (“DPs”) may trade in securities of the listed entity subject to compliance with the said regulations. Further to monitor trading by DPs, Schedule B read with Regulation 9 of the PIT Regulations, provides for the use of a notional Trading Window as an instrument towards this end.

The Trading Window shall be closed when the compliance officer determines that a DP or class of DPs can reasonably be expected to have possession of UPSI. DPs and their immediate relatives shall not trade in securities when the Trading Window is closed.

To improve the ease of doing business and to prevent inadvertent non-compliance of provisions of PIT Regulations by DPs, SEBI issued Circular No. SEBI/HO/ISD/ISD-SEC-4/P/CIR/2022/107 dated August 05, 2022, laying down a framework for developing a system to restrict the trading by Designated Persons (DPs) by way of freezing the PAN at the security level during Trading Window closure period.

To comply with the aforesaid circular a system has been developed and a framework put in place by the Depositories and the Stock Exchanges. The framework was initially made applicable for those listed companies that were part of benchmark indices i.e. NIFTY 50 and SENSEX.

Considering the satisfactory implementation of the framework for the listed companies forming part of benchmark indices and the consultations held with the Stock Exchanges and Depositories, SEBI vide Circular No. SEBI/HO/ISD/ISD-PoD-2/P/CIR/2023/124 dated July 19, 2023, extended the above-mentioned framework to all the listed companies.

The Circular dated July 19, 2023, vide its Annexures provides for the following:

Annexure A – Procedure for implementation of the systemfor freezing of PAN of DPs during Trading Window closure period;
Annexure B – Process flow chartfor freezing of PAN of DPs during Trading Window closure period;
Annexure C – Quarterly reporting formatby the Depositories for implementation of the framework for restricting trading by Designated Persons by Freezing PAN at the security level.

To ensure smooth implementation of the framework, a glide path was prescribed vide the said Circular as under:

Timelines for phase-wise implementation of the framework

Sr. No.	Companies to be covered	PAN freeze start date
1	Listed companies that are part of benchmark indices i.e. NIFTY 50 and SENSEX	Already applicable as on the date
2	Top 1,000 companies in terms of BSE Market Capitalization as of June 30, 2023 (excluding companies’ part of benchmark indices)	October 01, 2023
3	Next 1,000 companies in terms of BSE Market Capitalization as of June 30, 2023	January 01, 2024
4	Remaining companies listed on BSE, NSE & MSEI	April 01, 2024
5	Companies getting listed on Stock Exchanges post-issuance of this circular	1st day of the second quarter from the quarter in which the company gets listed#

Accordingly, BSE vide Notice No. 20231117-47 dated November 17, 2023, published a list of the next top 1000 companies as mentioned in Point No. 3 of the above table.

The Companies that qualify must include all equity ISINs and ISINs that are convertible into equity. The listed entities are required to designate one of the depositories as 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 09, 2020. Further, listed entities shall update their designated person list in the manner specified by the depositories regularly. The corresponding circular issued by NSE is Circular Ref No: NSE/CML/2023/79 dated November 17, 2023.

The aforementioned BSE notice and NSE circular shall come into force for trading window closure with effect from January 01, 2024.

However, BSE vide Notice No. 20231124-39 dated November 24, 2023, published a revised list of the next top 1000 companies as mentioned in Point No. 3 of the above table, and accordingly, the listed entities are required to refer to the said revised list.

The link for the BSE Notice dated November 17, 2023, is as follows:

https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20231117-47

The link for the NSE Circular dated November 17, 2023, is as follows:

https://www.nseindia.com/companies-listing/circular-for-listed-companies-equity-market

The link for the BSE Notice dated November 24, 2023, is as follows:

https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20231124-39

11. Corporate Grouping of Listed Companies

Certain Foreign Portfolio Investors (FPIs) hold concentrated portion of their equity portfolio in a single investee company/corporate group. Such concentrated investments raise the concern and possibility that promoters of such investee companies/ corporate groups, or other investors acting in concert, could be using the FPI route for circumventing regulatory requirements.

Recognizing the risk of takeover of Indian Company, the Government of India (GoI) by issuing a Press Note 3 dated April 17, 2020, stated that an entity of a country sharing land border with India or where the Beneficial Owner (‘BO’) of an investment into India is situated in or is a citizen of any such country shall invest only through Government Route. However, PN3 is not applicable to FPI investment.

With respect to identification of BOs of FPIs, the thresholds limit is specified under the Prevention of Money Laundering (Maintenance of records) Rules, 2005 (‘PMLR’), it is observed that no natural person is identified as the BO of several FPIs, since each investor entity in the FPI is below the threshold prescribed in the PMLR. However, there is a possibility that the same
natural person may hold a significant aggregate economic interest in the FPI via various investment entities, each of which are individually below the threshold for identification as a BO as prescribed in PMLR.

Accordingly, amendments were made in SEBI (Foreign Portfolio Investors) Regulations, 2019 vide SEBI Circular No. SEBI/HO/AFD/AFD–PoD–2/CIR/P/2023/148 dated November 01, 2023 with regards to certain disclosure requirements under the said regulations.

With reference to the abovementioned SEBI Circular, BSE vide Notice dated November 30, 2023 has notified that the BSE maintaining a repository containing names of companies forming a part of each Indian corporate group. The said list of corporate groups is available in the file uploaded on the website of the Exchange on below path:

BSE India Website> Corporates > Compliance and Other information> Corporate and Other info > Corporate Group Repository

Further BSE has also specified the following criteria/parameters for identifying the corporate group, which shall, inter alia, be considered by the listed companies / proposed to be listed companies: –

1.Subsidiary Companies:
A company and its subsidiaries share the same ownership group. Subsidiary status is established when a company holds a majority of shares (50% or more) in another company.

2.Associate Companies:
All associate companies of a firm are considered part of the same group. Association is defined when a company holds shares ranging from 20 to 50% in another company.

3.Explicit Group Attribution:
If a company’s annual report explicitly attributes itself to a specific group, that affiliation is acknowledged.

4.Website-Based Affiliation:
When a company’s annual report lacks group affiliation details but the website specifies, website information is considered the primary source for determining ownership.

5.Parent Company Affiliation:
Parent companies listing affiliates on their website are used as a reference to ascertain the ownership group of a company.

6.Related Party Disclosures:
Annual reports’ related party relationships are examined to establish the ownership group of an entity.

7.Joint Ventures:
In the case of a company serving as a joint venture between an Indian and a foreign group, it is attributed to the Indian group.

8.Promoter Group Influence:
If a promoter/promoter group of a company is a major shareholder in another company, the latter is considered part of the same group.

The said repository has only been formulated for compliance with the above-mentioned SEBI Circular and should not be considered as a legal interpretation/ definition of the terms such as ‘group/ related party/ associate companies’ mentioned in any other SEBI Regulation/ Circular/ Act etc.

Companies must notify the Exchange within 2 working days of any changes in its corporate group due to events like corporate restructuring, takeover, merger, demerger, acquisition, delisting, etc., effective immediately.

The link for the BSE Notice dated November 30, 2023, is as follows:
https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20231130-27