SEBI Tightens IPO Disclosure Rules, Approves Amendment for Faster Mutual Fund Payouts

At its board meeting on Friday, the Securities and Exchange Board of India (SEBI) approved several capital market proposals, including stricter disclosure requirements for initial public offerings (IPOs), allowing companies to proceed with the confidential pre-filing of offer documents, and the relaxation of open offer pricing standards for the divestment of public sector enterprises (PSU) among several key changes. The market regulator also decided to include mutual fund shares in the 2015 SEBI (Insider Trading Prohibition) rules. administration chaired by Ms. Madhabi Puri Buch since she took over the presidency of SEBI just over six months ago.

1) IPO issuers must disclose key performance indicators

SEBI’s board said IPO issuers must disclose key performance indicators, price per share based on past fundraisings. IPO issuers will now have to disclose the price per share based on trades in the 18 months prior to issuance. If no trades are made within 18 months, details of the last five primary or secondary trades dating back less than three years from the date of issue will be sought. Issuing companies must also disclose the weighted average cost of acquisition; the IPO floor price, ceiling must be displayed as a multiple of the weighted average cost of acquisition. The issuing companies’ committee of independent directors will recommend that the issue price range be justified on the basis of qualitative factors.

2) Providers of online bond platforms to register as stockbrokers

The SEBI board has ordered providers of online bond platforms to register as securities dealers with the market regulator. The SEBI will soon publish a circular to specify the operating mechanisms of these online platforms.

3) SEBI places mutual funds under insider trading regulations

On July 8, SEBI released a consultation paper proposing to include mutual fund shares within the scope of insider trading regulations. The regulator does not want those with knowledge of price-sensitive unpublished information (UPSI) to leave a system unfairly. The move is believed to be a direct result of some instances in recent years where senior managers of a mutual fund company sold their shares and left programs after they had been aware of problems with the programs.

Although the SEBI (Insider Trading Prohibition) Regulations of 2015 prohibit fund managers, portfolio managers and senior fund industry executives from buying and selling stocks while in possession of inside information , nothing prevents them from selling shares of mutual funds. The SEBI Code of Conduct restricts MF officials from trading stocks and bonds that their internal systems hold in their portfolios.

4) Pre-deposit

The SEBI Board has approved a proposal to introduce confidential pre-filing of offering documents as an alternative mechanism. This allows issuers to perform limited interactions without having to make sensitive information public. SEBI’s early observations will be available for a period of at least 21 days to assist investors in the decision-making process.

5) Modified OFS Framework

The regulator also gave its approval to the proposed changes to the existing framework for the offer for sale (OFS) through the exchange mechanism. “It has been decided to remove the minimum 10% holding requirement for non-promoting shareholders for the offering of shares through the OFS mechanism,” the statement said.

Currently, non-promoting shareholders holding at least 10% of the eligible company’s share capital and willing to offer shares of at least Rs 25 million are eligible to offer their shares through the OFS mechanism. The cooling off period of +/- 12 weeks for OFS has been reduced to a range of +/- 2 weeks to +/- 12 weeks. Retail investors were allowed to bid for the unsubscribed portion of the non-commercial segment.

6) Amendment of the REIT Regulation

The regulator also changed the standards for Real Estate Investment Trusts (REITs) to allow the reduction of the minimum holding by sponsors from 25% to 15% of the total units in circulation. “The minimum participation of sponsors is now reduced. This is a liberalisation,” said Ms Buch.

7) Modification for faster payout of mutual funds

The SEBI Board of Directors has approved an amendment to facilitate faster payment of redemptions and dividends by mutual funds. SEBI Board proposes MFs pay redemption in 3 business days vs. current 10 days Also proposes MFs pay dividends in 7 business days vs. current 15 days.

8) Alternative method of appointing independent directors

The SEBI Board of Directors has approved an alternative method for appointing independent directors for their first term. Under the alternative method, if the special appointing resolution does not obtain the required majority, the ordinary resolution and minority shareholder majority thresholds can be tested. If the resolution crosses the alternative thresholds in the same voting process, the nomination can be considered approved by the shareholders. The same threshold will apply for the dismissal of an independent director appointed under this mechanism.

9) Net settlement of cash segment and F&O segment upon expiration of equity derivatives to facilitate efficient settlement

The Board was briefed on the proposed net settlement framework under which the obligations arising from the settlement of the cash segment and the physical settlement of the futures and options (F&O) segment, upon expiry of equity derivatives, are to be settled on a net basis, unlike the current approach of settling these obligations separately.

The benefit of netting is available to all investors other than those required to engage in compulsorily delivery-only transactions. The framework aims to strengthen the alignment of the treasury segment and the F&O segment, bringing clearing efficiencies for participants, mitigating price risk in some cases and reducing post-expiration margin requirements .

10) Divestment

The board relaxed certain provisions of the takeover bid code for the divestment of PSUs. It removed the need to consider the 60-day volume-weighted average market price to calculate the open offer price for the divestment of PSUs and for the indirect acquisition of any other company in which the PSU holds a stake.

During an interaction with the press after the board meeting, Ms. Puri also expressed her displeasure with the algo trading. She pointed out that SEBI was ready to consider revising the algorithm trading regulations provided the industry lived up to its demands. Algo trading is defined as the execution of trades by providing a predefined set of instructions to a computer. These transactions use historical information and data to execute transactions. Ms Buch said the regulator’s attempts to gather evidence on algo trading returns from industry players were disappointing.

“The attempt has already been made by us because we have published a consultation document and there we have expressed our will and our openness to do so. They got to a point where they couldn’t and as a result we unfortunately decided to split our flyer into two parts,” she said.

“The first was to make sure that the mis-selling that was happening in the market had to stop on an ongoing basis and, second, as the industry was ready to come back and show us and demonstrate that its track record can be audited, simulated and proven. , we will think about it. In fact, we worked very hard but the industry was not ready,” she added.

In August 2022, SEBI issued guidelines for algorithmic trading prohibiting stockbrokers from claiming high returns, past or future, from these exchanges. Ms Buch said the regulator would only consider licensing if such claims are proven and brokers can satisfy SEBI on the veracity of their claims.

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