SEBI Oct 2024 - AmitaDesai

Amendments in Securities Law

1. Measures to Strengthen Equity Index Derivatives Framework for Increased Investor Protection and Market Stability

On the basis of the measures recommended by the Expert Working Group on derivatives formed by SEBI to suggest measures for investor protection and market stability and subsequent deliberations in the Secondary Market Advisory Committee (SMAC) of SEBI, a consultation paper was issued by SEBI on July 30, 2024, in the matter. The comments received on the consultation paper were examined by SEBI, and the matter was further discussed with Stock Exchanges and Clearing Corporations, subsequent to which SEBI vide Circular No. SEBI/HO/MRD/TPD-1/P/CIR/2024/132 dated October 01, 2024 has been decided to put in place the following measures to strengthen the equity index derivatives framework:

a. Upfront collection of Option Premium from options buyers (effective from Feb. 01, 2025)

Options prices carry very high implicit leverage and has a possibility of fast-paced price appreciation or depreciation. In order to avoid any undue intraday leverage to the end-client, and to discourage any practice of allowing any positions beyond the collateral at the end-client level, it has been decided to mandate collection of options premium upfront from option buyers by the Trading Member (TM)/ Clearing Member (CM).

b. Removal of calendar spread treatment on the Expiry Day (effective from Feb. 01, 2025)

On the Expiry Day the value of a contract can move very differently from the value of similar contracts expiring in future representing significant basis risk. Accordingly, it has been decided that the benefit of offsetting positions across different expiries (‘calendar spread’) shall not be available on the day of expiry for contracts expiring on that day

c. Intraday monitoring of position limits (effective from Apr. 01, 2025)

Amidst the large volumes of trading on expiry day, there is a possibility of undetected intraday positions beyond permissible limits during the course of the day. To address the risk of position creation beyond permissible limits specified by SEBI from time to time and monitored by Stock Exchanges/ Clearing corporations at the end of day, it has been decided that existing position limits for equity index derivatives shall henceforth also be monitored intra-day by exchanges.

d. Contract size for index derivatives (effective from Nov. 20, 2024)

The current stipulated contract size for index futures and index positions is between INR 5 lakhs and INR 10 lakhs which was set in 2015. Since then, broad market values and prices have increased by around three times and therefore it has been decided that a derivative contract shall have a value not less than INR 15 lakhs at the time of its introduction in the market. Further, the lot size shall be fixed in such a manner that the contract value of the derivative on the day of review is within INR 15 lakhs to INR 20 lakhs.

e. Rationalization of Weekly Index derivatives products (effective from Nov. 20, 2024)

There is hyperactive trading in index options on expiry day, with average position holding periods in minutes, accompanied by increased volatility in the value of the index through the day and at expiry. All this has implications for investor protection and market stability, with no discernable benefit towards sustained capital formation. Accordingly, to curb excessive trading in index derivatives on expiry day, it has been decided to rationalize index derivatives products offered by exchanges which expire on weekly basis. Henceforth, each exchange may provide derivatives contracts for only one of its benchmark index with weekly expiry.

f. Increase in tail risk coverage on the day of options expiry (effective from Nov. 20, 2024)

Given the heightened speculative activity around options positions and the attendant risks
on the day of options contracts expiry, it has been decided to increase the tail risk coverage by levying an additional Extreme Loss Margin of 2% for short options contracts.

The link for the aforesaid Circular is as follows:
https://www.sebi.gov.in/legal/circulars/oct-2024/measures-to-strengthen-equity-index-derivatives-framework-for-increased-investor-protection-and-market-stability_87208.html

2. Relaxation from compliance with certain provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

SEBI had granted relaxation to listed companies from sending physical copies of financial statements (including Board’s report, Auditor’s report or other documents required to be attached therewith) for Annual General Meetings and from sending proxy forms for General Meetings held only through electronic mode to the shareholders held till September 30, 2024.

Now SEBI, pursuant to the extension of similar relaxations granted by the MCA and receipt of representations, has vide Circular No. SEBI/HO/CFD/CFD-PoD-2/P/CIR/2024/133 dated October 03, 2024, has extended the above-mentioned relaxations till September 30, 2025.

The link for the aforesaid Circular is as follows:
https://www.sebi.gov.in/legal/circulars/oct-2024/relaxation-from-compliance-with-certain-provisions-of-the-sebi-listing-obligations-and-disclosure-requirements-regulations-2015_87323.html

3. Consultation Paper on Facilitation to SEBI registered Stock Brokers to access Negotiated Dealing System-Order Matching (NDS-OM) for trading in Government securities- Separate Business Units (SBU)

The Government of India wishes to facilitate retail participation in the purchase and trading of Government Securities (G-Secs). Accordingly, it is proposed that stock brokers may deal in G-Secs in the Negotiated Dealing System-Order Matching (NDS-OM1) of the competent regulatory authority.

In order to ensure ease of doing business and to leverage the existing infrastructure of the stock brokers, it is proposed that stock brokers may offer these services as a Separate Business Unit (SBU) of the stock broking entity itself on an arms-length basis. All the matters relating to policy, risk management, administration, supervision, enforcement, investor grievance and claims related to trading in G-Secs on NDS-OM by stock brokers would come under the jurisdiction of the respective regulatory authority.

SEBI vide Consultation paper dated October 04, 2024 had invited public comments on a draft circular on “Facilitation to SEBI registered Stock Brokers to access Negotiated Dealing System-Order Matching (NDS-OM) for trading in Government securities”. The said draft circular is placed at Annexure A to the Consultation Paper.

The link to the aforesaid Consultation Paper is as follows:
https://www.sebi.gov.in/reports-and-statistics/reports/oct-2024/consultation-paper-on-draft-circular-for-facilitation-to-sebi-registered-stock-brokers-to-access-negotiated-dealing-system-order-matching-nds-om-for-trading-in-government-securities-separate-busin-_87341.html

4. Timelines for disclosures by Social Enterprises on Social Stock Exchange (“SSE”) for FY 2023-24

SEBI vide Circular No. SEBI/HO/CFD/PoD-1/P/CIR/2024/134 dated October 07, 2024, has extended the outer timeline for annual disclosures under Regulation 91C(1) and annual impact report under Regulation 91E(1) of SEBI LODR Regulations by Social Enterprises on Social Stock Exchange for FY 2023-24 up to January 31, 2025.

The link for the aforesaid Circular is as follows:
https://www.sebi.gov.in/legal/circulars/oct-2024/timelines-for-disclosures-by-social-enterprises-on-social-stock-exchange-sse-_87387.html

5. Consultation paper on draft circular for “Policy for Sharing Data for the Purpose of Research / Analysis”

Based on the experience from data handling requests received by SEBI pursuant to its Data Sharing Policy (DSP), SEBI felt the need to modify the extant DSP to address certain gaps and to make the process less cumbersome. Certain proposed modifications were taken to the SEBI Market Data Advisory Committee (MDAC) for their deliberation and recommendations which opined that SEBI should share only the data which is under its ownership. The data generated by the MIIs should be shared by the respective Market Infrastructure Institutions (MIIs) and for this purpose, every MII should have its own data-sharing policy. It further opined that for authenticity and adequacy of data, together with data privacy organizations will need to have policies on data collection, processing, storage, dissemination, and sharing.

Accordingly, SEBI vide Consultation paper dated October 08, 2024 had invited public comments on a draft circular on “Policy for Sharing Data for the Purpose of Research / Analysis”. The said draft circular is placed at Annexure A to the Consultation Paper.

The link to the aforesaid Consultation Paper is as follows:
https://www.sebi.gov.in/reports-and-statistics/reports/oct-2024/consultation-paper-on-draft-circular-for-policy-for-sharing-data-for-the-purpose-of-research-analysis-_87414.html

6. Specific due diligence of investors and investments of AIFs

In terms of Regulation 20(20) of SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) every AIF, Manager of the AIF, and Key Management Personnel of the Manager and the AIF shall exercise specific due diligence, with respect to investors and investments of the AIF, to prevent the facilitation of circumvention of such laws, as may be specified by SEBI from time to time.

Accordingly, SEBI vide Circular No. SEBI/HO/AFD/AFD-POD-1/P/CIR/2024/135 dated October 08, 2024, has provided specific due diligence to be carried out by persons mentioned above to prevent the facilitation of circumvention of the following regulatory frameworks:

a. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 and other regulations of SEBI wherein benefits or relaxations have been provided to entities designated as Qualified Institutional Buyers (QIBs):

In order to prevent AIFs from facilitating investors who are otherwise ineligible for QIB status on their own, in availing benefits designated for QIBs, necessary due diligence as per the implementation standards formulated by Standard Setting Forum for AIFs (‘SFA’), shall be carried out prior to availing benefits available to QIBs under ICDR Regulations and other SEBI Regulations.

b. ‘Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002’ (SARFAESI Act) wherein benefits are provided to entities designated as Qualified Buyers (QBs):

In order to prevent AIFs from facilitating investors who are otherwise ineligible for QB status on their own to subscribe to Security Receipts (SRs) issued by an Asset Reconstruction Company (ARC) and in availing other benefits designated for QBs, necessary due diligence as per the implementation standards formulated by SFA, shall be carried out prior to making any investments in SRs issued by ARCs or availing benefits designated for QBs under the SARFAESI Act.

c. Prudential norms specified by Reserve Bank of India (RBI) for regulated lenders with respect to Income Recognition, Asset Classification, Provisioning and restructuring of stressed assets:

To address the issue of ever-greening of stressed loans/assets of RBI regulated lenders/entities through AIFs and to prevent circumvention of norms with respect to Income Recognition, Asset Classification, Provisioning and Restructuring of stressed

loans/assets specified by RBI for its regulated lenders, for every scheme of AIF whose manager or sponsor or investors are regulated by RBI necessary due diligence as per the implementation standards formulated by SFA, shall be carried out. If an investor of the scheme is an AIF, or a fund set up outside India or in International Financial Services Centres in India, then the criteria check for investor(s) regulated by RBI shall be carried out on a look through basis.

d. Rule 6 of Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules) for investment from countries sharing land border with India (read with Press Note 3 dated April 17, 2020 of FDI Policy 2020):

To ascertain whether investors from countries sharing land border with India are investing in Indian companies through AIFs, necessary due diligence as per the implementation standards formulated by SFA, shall be carried out prior to making any investment.

The link to the aforesaid Circular is as follows:
https://www.sebi.gov.in/legal/circulars/oct-2024/specific-due-diligence-of-investors-and-investments-of-aifs_87434.html

7. Change in timing for securities payout in the Activity Schedule for T+1 Rolling Settlement

SEBI vide Circular dated June 05, 2024, has mandated Direct Payout of securities to the client account by the Clearing Corporations (CC). Thus, as a result of Direct Payout, SEBI vide Circular SEBI/HO/MRD/MRD-PoD-2/P/CIR/2024/137 dated October 10, 2024 has revised the timing of payout of securities from 1:30 PM to 3:30 PM and has provided that the securities shall be credited to the client’s demat account on the same settlement day instead of one working day from the receipt of pay-out from the Clearing Corporation.

The link to the aforesaid Circular is as follows:
https://www.sebi.gov.in/legal/circulars/oct-2024/change-in-timing-for-securities-payout-in-the-activity-schedule-for-t-1-rolling-settlement_87512.html

8. Introduction of Liquidity Window facility for investors in debt securities through Stock Exchange mechanism

SEBI has been undertaking various measures to widen the investor base and also to encourage participation and transparency in the corporate bond market. Some of the measures include introduction of the electronic book Provider platform (EBP Platform) for debt securities issued on private placement basis, exceeding issue size Rs 50 crores, ‘Request for Quote’ (RFQ) platform for secondary market transactions, reduction in the face value of debt securities issued on private placement basis (proposed to be listed), introduction of framework for Online Bond Platforms, introduction of corporate bonds repo platform operated by AMC Repo Clearing Limited, etc.

One of the factors that drives investor participation in a market is the availability of liquidity. Accordingly, SEBI vide Circular SEBI/HO/DDHS/DDHS-PoD-1/P/CIR/2024/141 dated October 16, 2024 has proposed to introduce a Liquidity Window facility framework by use of put options as specified under Regulation 15 of the SEBI (Issue and Listing of Non-convertible Securities) Regulations, 2021, exercisable on pre-specified dates or intervals in the manner outlined in the said Circular.

The Circular inter-alia provides for the following:

Issuances eligible for Liquidity Window facility;
Monitoring of implementation and outcome of Liquidity Window facility;
Period of Liquidity Window facility and re-issuances;
Aggregate limit of Liquidity Window facility and per liquidity Window sub-limit;
Mode and manner of availing the Liquidity Window facility;
Valuation of debt securities, amounts payable and the date of payment;
Reporting and disclosure requirements.

The link to the aforesaid Circular is as follows:
https://www.sebi.gov.in/legal/circulars/oct-2024/introduction-of-liquidity-window-facility-for-investors-in-debt-securities-through-stock-exchange-mechanism_87674.html

9. Consultation paper on “Opening of demat account in the name of Association of Persons (AOPs) for holding certain securities in dematerialized form.”

As per the current statutes, shares in a company cannot be held in the name of a partnership firm, unregistered trust, or Association of Persons (AOP) unless such an entity is a separate legal entity.

Currently, the opening of a Demat account is not allowed in the name of partnership firms, Association of Persons (AOP), and unregistered trusts but is allowed to be opened only in the name of relevant natural persons viz. partners, persons associated with AOP and trustees respectively.

Although statutes clarify that unregistered trusts, AOPs, and partnership firms cannot become members of the Company as they are not juristic persons, the position in terms of their holding of other financial assets like corporate bonds, G-Sec, mutual fund units, etc. (which too are held in demat form) by partnership firms, unregistered trusts and association of persons is not clear.

Unlike partnership firms and unregistered trusts, AOPs can be organized in different forms (like joint venture associations, cooperative societies, co-operative housing societies, etc.) and can hold government securities, mutual fund units and corporate bonds when permitted by the applicable law.

As AOPs can hold securities other than equities in the name of the entity, the Beneficial Owner account can be in the name of the AOP. Thus, SEBI vide Consultation paper dated October 16, 2024 invited public comments on the proposal to amend the SEBI Master Circular for Depositories to clarify that Association of Persons (AOPs) can open a demat account in the name of AOP to dematerialise and hold securities (other than equity shares).

The link to the aforesaid Consultation Paper is as follows:
https://www.sebi.gov.in/reports-and-statistics/reports/oct-2024/consultation-paper-on-opening-of-demat-account-in-the-name-of-association-of-persons-aops-for-holding-certain-securities-in-dematerialized-form-_87675.html

10. Process improvements under SEBI’s initiative make sale proceeds available to Foreign Portfolio Investors (FPIs) on settlement day itself

FPIs previously reported delays in their access to sale proceeds beyond the standard ‘T+1’ settlement date due to the erstwhile process adopted for obtaining tax clearance on their net sale proceeds, to ensure compliance with FEMA Regulations.

Accordingly, pursuant to consultations with various stakeholders including FPIs which led to significant process improvements, SEBI vide Press Release No. 26/2024 dated October 16, 2024 has informed of a new system in place, wherein tax certificates for FPI sale trades executed on ‘T’ day are issued by tax consultants by 9:00 AM IST on ‘T+1’ day which allows FPIs to access sale proceeds, either for repatriation or for reinvestment, on the same ‘T+1’ day. The efficiency gains on account of these revised processes are estimated to be around INR 2,000 Crore per annum.

The link to the aforesaid Press Release is as follows:
https://www.sebi.gov.in/media-and-notifications/press-releases/oct-2024/process-improvements-under-sebi-s-initiative-make-sale-proceeds-available-to-foreign-portfolio-investors-fpis-on-settlement-day-itself_87622.html

11. Clarification with regard to usage of 3 – in – 1 type accounts for making an application in public issue of securities

SEBI vide Master Circular dated May 22 2024 prescribes provisions pertaining to application process in case of public issue of debt securities, non-convertible redeemable preference shares, municipal debt securities and securitised debt instruments.

SEBI has received feedback from stakeholders specifying that there is a need to explicitly specify the usage of 3-in-1 type accounts for making an application in public issue of the above-mentioned securities. Accordingly, SEBI vide Circular SEBI/HO/DDHS/DDHS-PoD-1/P/CIR/2024/142 dated October 18, 2024 has clarified

SEBI vide Circular SEBI/HO/DDHS/DDHS-PoD-1/P/CIR/2024/142 dated October 18, 2024 that in addition to existing modes of making an application in public issue of securities specified in the above mentioned Master Circular investors may continue to submit the bid-cum application form online using the facility of linked online trading, demat and bank account (3-in-1 type accounts).

The link to the aforesaid Circular is as follows:
https://www.sebi.gov.in/legal/circulars/oct-2024/clarification-with-regard-to-usage-of-3-in-1-type-accounts-for-making-an-application-in-public-issue-of-securities_87747.html

12. Consultation paper on Draft circular on recognition as Specified Digital Platform

In terms of SEBI (Intermediaries) (Amendment) Regulations, 2024, Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Fourth Amendment) Regulations, 2024 and SEBI (Depositories and Participants) (Second Amendment) Regulations, 2024, the persons regulated by SEBI, recognised stock exchanges, recognised clearing corporations and registered depositories, and their agents shall not have any direct or indirect association with another person who:

provides advice or any recommendation, directly or indirectly, in respect of or related to a security or securities, unless the person is registered with or otherwise permitted by the Board to provide such advice or recommendation; or
makes any claim, of returns or performance expressly or impliedly, in respect of or related to a security or securities, unless the person has been permitted by the Board to make such a claim.

The above provisions however shall not be applicable in respect of an association through a “specified digital platform”. A “specified digital platform” shall mean digital platform as specified by the Board, which has a mechanism in place to take preventive as well as curative action, to the satisfaction of the Board, to ensure that such a platform is not used for indulging in any activity as referred above.

Accordingly, SEBI vide Consultation Paper dated October 22, 2024 had invited public comments on draft circular on “Recognition as Specified Digital Platform” laying down the preventive and curative measures required to be demonstrated by the digital platform for recognition as Specified Digital Platform under SEBI (Intermediaries) Regulations, 2008, Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 and SEBI (Depositories and Participants) Regulations, 2018. The draft circular is placed at Annexure A to the Consultation Paper.

The link to the aforesaid Consultation Paper is as follows:
https://www.sebi.gov.in/reports-and-statistics/reports/oct-2024/consultation-paper-on-recognition-as-specified-digital-platform_87839.html

13. Inclusion of Mutual Fund units in the SEBI (Prohibition of Insider Trading) Regulations, 2015 (“PIT Regulations”)

To strengthen the regulatory framework in relation to the prohibition of insider trading in units of mutual funds, SEBI vide notification dated November 24, 2022, had included mutual funds under the PIT Regulations. The said amendments notified on November 24, 2022, shall be applicable from November 01, 2024.

SEBI had constituted a working group of representatives from AMCs, AMFI, Stock Exchanges, RTAs and Depositories to streamline the implementation of the abovementioned amendments and pursuant to their recommendations SEBI vide Circular SEBI/HO/IMD/IMD-PoD-1/P/CIR/2024/144 dated October 22, 2024 (“the Circular”) has inter-alia decided the following:

Disclose the details of the holdings of Designated Persons of AMCs, trustees and their immediate relatives on an aggregate basis within 10 calendar days from the end of the quarter in the format specified in the Circular;
Reporting of details of all the transactions in the units of its own mutual funds, above the threshold amount which aggregates to a value in excess of INR 15 Lakhs, in one transaction or a series of transactions over any calendar quarter, per PAN across all schemes excluding the exempted schemes, executed by the Designated Persons of asset management company, trustees and their immediate relatives by the concerned person to the Compliance Officer of AMC within two business days from the date of transaction in the format specified in the Circular.
In terms of Clause 12 of Schedule B1 and Clause 11A of Schedule C of PIT Regulations, the observed violations of PIT Regulations shall be disclosed in the format specified in the Circular.

The link to the aforesaid Circular is as follows:
https://www.sebi.gov.in/legal/circulars/oct-2024/inclusion-of-mutual-fund-units-in-the-sebi-prohibition-of-insider-trading-regulations-2015_87833.html

14. Modification in Annexure to Common Application Form (CAF)

SEBI had modified the Master Circular for Foreign Portfolio Investors, Designated Depository Participants, and Eligible Foreign Investors, to provide flexibility of having up to a hundred percent aggregate contribution by NRIs, OCIs, and RI individuals in the corpus of FPIs based in International Financial Services Centres (“IFSCs”) in India and regulated by International Financial Services Centres Authority (“IFSCA”). Accordingly, to provide the said flexibility to existing and new FPIs, SEBI vide Circular SEBI/HO/AFD/AFD-POD-3/P/CIR/2024/145 dated October 22, 2024 has modified the Annexure to Common Application Form, provided in the above-mentioned Master Circular, by providing the following additional option:

“ð We confirm that NRIs/OCIs/RIs as investors in the FPI and contributions by single NRI/OCI/RI including those of NRI/OCI/RI controlled Investment Manager are below 25 percent of the corpus of the FPI. The aggregate contributions by NRI/OCI/RI are intended to be above 50% / are above 50% of the corpus of the FPI and we shall at all times be in compliance with the SEBI (Foreign Portfolio Investors) Regulations, 2019 and Master Circular for Foreign Portfolio Investors, Designated Depository Participants and Eligible Foreign Investors as amended from time to time.
[Applicable only in case of eligible applicants from International Financial Services Centres in India].”

The link to the aforesaid Circular is as follows:
https://www.sebi.gov.in/legal/circulars/oct-2024/modification-in-annexure-to-common-application-form-caf-_87849.html

15. Valuation of repurchase (repo) transactions with tenor of up to 30 days

SEBI vide Master Circular dated June 27, 2024 had specified norms for valuation of investments by schemes of Mutual Funds. The aforesaid norms require all investments by Mutual Funds in money market and debt securities, except certain securities which include repurchase transactions with tenor of up to 30 days, to be carried out on a mark-to-market basis. The repurchase (repo) transactions (including tri-party repo i.e., TREPS) with tenor of up to 30 days are permitted to be valued on a cost plus accrual basis i.e., amortisation based valuation.

In view of the above valuations, a scenario may arise wherein commercial papers of an issuer would be valued at mark-to-market basis whereas borrowing through repos on corporate bond, by the same entity, would be valued at cost plus accrual basis. Thus, in such cases, impact of any event/adverse news concerning the above issuer may get reflected faster in the valuation of its commercial papers and consequently NAV as compared to the repo transactions, thereby creating an unintended regulatory arbitrage.

Accordingly, based on the consultation with industry participants as well as the recommendation of the Mutual Fund Advisory Committee (MFAC), SEBI vide Consultation paper dated October 24, 2024 had invited public comments on the draft circular on “Valuation of repurchase (repo) transactions by Mutual Funds” proposing that the valuation of investments by Mutual Funds in repo transactions of tenor up to 30 days may also be mandated to be carried out on a mark to market basis. The draft circular is placed at Annexure A to the Consultation Paper and the comments can be sent up to November 14, 2024.

The link to the aforesaid Consultation Paper is as follows:
https://www.sebi.gov.in/reports-and-statistics/reports/oct-2024/valuation-of-repurchase-repo-transactions-by-mutual-funds_87934.html

16. SMS and E-mail alerts to investors by Stock Exchanges

SEBI, in order to protect investors from unauthorized trading in their accounts had issued guidelines regarding SMS and E-mail alerts to investors by stock exchanges.

Accordingly, stock brokers inter-alia are required to upload separate mobile numbers and email addresses for each client, and under exceptional circumstances the stock broker may upload the same mobile number or e-mail address for more than one client provided such clients belong to one family, wherein family means self, spouse, dependent children and dependent parents. The aforementioned exception is limited only to individual clients and does not extend to clients such as HUF, Partnership, trust, and Corporate.

Accordingly, SEBI vide Consultation Paper dated October 28, 2024 had invited public comments on the draft circular on “SMS and E-mail alert to investors by stock exchanges” to extend the above-mentioned exception to non-individual clients as well. The draft circular is placed at Annexure A to the Consultation Paper and the comments can be sent up to November 18, 2024.

The link to the aforesaid Consultation Paper is as follows:
https://www.sebi.gov.in/reports-and-statistics/reports/oct-2024/sms-and-e-mail-alerts-to-investors-by-stock-exchanges_88037.html

17. Consultation Paper on Ease of Doing Business for Small and Medium REITS (SM REITS)

SEBI vide Consultation Paper dated October 30, 2024 has invited public comments on the following 3 matters with respect to Ease of Doing Business for Small and Medium REITs:

Standardizing the disclosures in scheme offer document;
Public issue process for scheme of SM REIT;
Alignment of provisions for SM REITs vis-à-vis REITs.

The link to the aforesaid Consultation Paper is as follows:
https://www.sebi.gov.in/reports-and-statistics/reports/oct-2024/consultation-paper-on-ease-of-doing-business-for-small-and-medium-reits_88153.html

18. Consultation Paper on introduction of Regulatory Framework for Restricted Return INVITs

InvITs were introduced in India to provide investors with an opportunity to gain exposure to infrastructure projects with diversification of risks through pooling arrangements. Under the InvIT structure, it was envisaged that all rewards and benefits related to the underlying asset should flow to the unitholders and the benefits accrued on account of acquisition of assets and managing such assets should not be restricted.

However, during thematic inspection of SEBI registered InvITs with respect to capital structure of SPVs/Holcos of InvITs it was observed that SPVs of certain InvITs entered into an agreement with sponsors, sponsor group or pre disclosed counterparties for providing additional benefits in terms of sharing of excess return/ or revenue of the SPVs beyond a certain threshold, thereby restricting the return to unitholders to certain threshold as guided by the different agreements executed by the SPVs.

During interaction with investors it was observed that a demand exists for such transactions where returns to unitholders are potentially structured to provide a floor or cap or a collar in respect of returns which allows unitholders to receive assured returns, albeit with a cap on the upside and/or protection on the downside return generated by the assets owned by the InvIT. Hence, it is proposed to explore the regulatory framework for Restricted Returns InvITs.

Accordingly, SEBI vide Consultation Paper dated October 30, 2024 had invited public comments on the proposals related to introduction of regulatory framework for restricted return InvITs. The comments can be sent up to November 13, 2024.

The link to the aforesaid Consultation Paper is as follows:
https://www.sebi.gov.in/reports-and-statistics/reports/oct-2024/consultation-paper-on-introduction-of-regulatory-framework-for-restricted-return-invits_88156.html

19. Consultation paper on modifying the requirement of uploading initial draft Scheme Information Documents (SIDs) on SEBI website

SEBI has noted instances wherein Asset Management Companies (“AMCs”) which file Scheme Information Documents (“SID”) based on new products lose the first mover advantage due to the upload of the initial draft SID on the SEBI website. It has been observed that once a draft SID proposing a new product is uploaded on the SEBI website, other AMCs tend to follow suit. At times, this leads to a situation where the New Fund Offer (“NFO”) of an AMC that followed suit precedes the NFO of the AMC that conceived the idea and the AMC proposing the new product loses its first mover advantage.

To address the concerns, discussions were held with mutual fund industry and Association of Mutual Funds in India to arrive at an optimum stage when draft SID should be uploaded on SEBI website and the minimum duration for which it should be available for public comments.

Accordingly, SEBI vide Consultation Paper dated October 30, 2024 had invited public comments on the proposal to reduce the number of days from 21 working days to 5 working days for which the draft SIDs submitted by AMCs are to be made available on SEBI website. The comments can be sent up to November 20, 2024.

The link to the aforesaid Consultation Paper is as follows:
https://www.sebi.gov.in/reports-and-statistics/reports/oct-2024/consultation-paper-on-modifying-the-requirement-of-uploading-initial-draft-scheme-information-documents-sids-on-sebi-website_88110.html

20. Consultation paper on proposals for REITs and InvITs

SEBI vide Consultation Paper dated October 30, 2024 had invited public comments on the following proposals related to Ease of Doing Business and Investor Protection Measures for REITs, SM REITs and InvITs:

Part A: Ease of Doing Business Measures

Permitting transfer of locked-in units amongst sponsor and sponsor group for REITs and InvITs;
Definition of Common Infrastructure under REIT Regulations;
Alignment of NRC composition of Managers/Investment Managers for REITs, InvITs and SM REITs with LODR Regulations;
Amendment of Governance Norms for reporting of quarterly results Reporting – InvITs;
Allowing REITs, SM REIT Schemes and InvITs to deal in Interest Rate Derivatives for Hedging;
Review of conditions for enhanced borrowings beyond 49% by InvITs;
Timeline for filling up of vacancy in the office of the Board of Directors of Manager of REIT (Including SM REIT Schemes) / Investment Manager of InvIT;
Clarification on requirement of Credit Rating to be obtained by REITs, InvITs and SM REIT Schemes for borrowings;
Inclusion of fixed deposits as cash and cash equivalents for computation of leverage for REITs, InvITs and SM REIT Schemes; and
Expanding the asset base for REITs and SM REIT Schemes.

Part – B: Investor Protection Measures

Review of investment in unlisted equity shares by REITs;
Review of investment in liquid mutual funds – REITs and InvITs; and
Roles and responsibilities of trustee for REITs, InvITs and SM REIT Schemes.

The comments can be sent up to November 13, 2024.

21. Consultation Paper on specifying timelines for Deployment of Funds collected by Asset Management Companies (AMC’s) in New Fund Offer (NFO) as per Asset Allocation of the Scheme

It has been observed by SEBI that there is no regulatory provision specifying the timeline for deployment of funds as per the required asset allocation of the scheme after NFO. Considering that the size of the corpus required to be deployed after NFO, could be significantly large, suitable flexibility is required for the fund managers to deploy the funds according to his/her/their views on the market. However, the AMC should not retain the proceeds received through NFO, for an indefinite period without deployment in the stated assets. Therefore, it would be prudent to have a timeline within which deployment of funds may be required to be made as per the prescribed asset allocation of the scheme.

SEBI vide Consultation Paper dated October 30, 2024 had invited public comments the proposals related to specifying timelines for deployment of funds collected by Mutual Funds in New Fund Offers (NFO), as per asset allocation of a scheme. The comments can be sent up to November 20, 2024.

The link to the aforesaid Consultation Paper is as follows:
https://www.sebi.gov.in/reports-and-statistics/reports/oct-2024/consultation-paper-on-specifying-timelines-for-deployment-of-funds-collected-by-asset-management-companies-amcs-in-new-fund-offer-nfo-as-per-asset-allocation-of-the-scheme_88105.html

22. Consultation Paper on proposals for Ease of Doing Business by ESG Rating Providers (ERPs)

SEBI has received representation from ERPs, inter alia, seeking clarification on the applicability of certain provisions prescribed in Chapter IVA of the SEBI (Credit Rating Agencies) Regulations, 1999 for ERPs following a subscriber-pays model. Further, ERPs have also sought clarification with regard to the ESG rating of issuers/ products other than listed issuers/ securities.

Accordingly, SEBI vide Consultation Paper dated October 31, 2024 has invited public comments on the proposed amendment in provisions related to ESG Rating Providers (ERPs) in SEBI (Credit Rating Agencies) Regulations, 1999. The matters consulted are as follows:

Requirement of sharing draft ESG rating report with the issuer in case of ERPs following a subscriber-pays model.
Dealing with appeal and representation by the rated issuer in case of ERPs following a subscriber-pays model.
Dispensing with the requirement to disclose the ESG ratings to the stock exchange(s) where the issuer or the security is listed, in case of ERPs following a subscriber-pays model.
Specifying Activity Based Regulation for ERPs.

The comments can be sent up to November 15, 2024.

The link to the aforesaid Consultation Paper is as follows:
https://www.sebi.gov.in/reports-and-statistics/reports/oct-2024/consultation-paper-on-proposals-for-ease-of-doing-business-by-esg-rating-providers-erps-_88162.html

23. Consultation paper on review of provisions of LODR Regulations pertaining to corporate governance norms for High-Value Debt Listed entities (HVDLEs)

In order to protect the interests of debenture holders of HVDLEs and imbibing corporate governance amongst such issuer entities of debt securities, SEBI vide notification dated September 07, 2021 had inserted Regulation 15(1A) in the LODR Regulations specifies compliance of Regulation 16 to Regulation 27 by HVDLEs. The aforesaid provisions were made applicable on a ‘comply or explain’ basis until March 31, 2023, and currently extended till March 31, 2025.

SEBI had constituted a working group in May 2023 to review the applicability of Corporate Governance Norms under LODR Regulations, inter-alia, keeping in mind the ease of doing business and the interest of investors in such HVDLEs and had also sought comments from the public on various Regulations vide a Press Release in October 2023. The comments received from the public regarding corporate governance norms for HVDLE were forwarded to the working group for consideration in its final recommendation. The working group submitted its report on January 19, 2024.

Accordingly, based on the recommendation of the working group and subsequent internal deliberations, SEBI vide Consultation Paper dated October 31, 2024, had invited public comments on the following proposals regarding the corporate governance norms for HVDLE:

Introduction of a separate chapter for corporate governance norms in the LODR Regulations which will be applicable only to HVDLEs;
Relaxation in the threshold for identification of High-Value Debt Listed Entities for applicability of Corporate Governance Norms;
Introduction of the sunset clause for applicability of Corporate Governance norms;
Relaxation for HVDLEs which are not companies as per the Companies Act, 2013;
Relaxation with regard to the constitution of the Nomination and Remuneration Committee (NRC);
Relaxation with respect to the constitution of the Risk Management Committee (RMC);
Relaxation with respect to the constitution to the Stakeholders Relationship Committee (SRC);
Introduction of filing of corporate governance compliance report in XBRL format and harmonization of reporting formats with that specified for equity listed entities;
Introduction of Business Responsibility and Sustainability Report (BRSR) for HVDLEs on a voluntary basis;
Requirements related to the maximum number of directorships;
Requirements related to a number of memberships or chairpersonships in the committees by a director; and
Requirements pertaining to Related Party transactions (RPT).

The link to the aforesaid Consultation Paper is as follows:
https://www.sebi.gov.in/reports-and-statistics/reports/oct-2024/consultation-paper-on-review-of-provisions-of-lodr-regulations-pertaining-to-corporate-governance-norms-for-high-value-debt-listed-entities-hvdles-_88171.html