SEBI Announces New Regulatory Measures

The Securities and Exchange Board of India (SEBI) board convened on a Wednesday to announce key regulatory measures aimed at enhancing the functioning of public sector undertakings (PSUs) and improving the investment climate for foreign portfolio investors (FPIs).

Key Measures Announced by SEBI:

• Voluntary Delisting for PSUs:

  • SEBI will facilitate voluntary delisting of select PSUs, specifically when the government or PSUs hold 90% or more of the total issued share capital.
  • The delisting process for eligible PSUs will utilize a fixed price method with a minimum of 15% premium above the floor price.

• Relaxation for Foreign Portfolio Investors (FPIs):

  • SEBI will ease certain compliance requirements for FPIs that invest solely in government securities (G-Secs).
    • The periodic mandatory Know Your Customer (KYC) review for G-Secs FPIs will align with the Reserve Bank of India (RBI), resulting in less frequent reviews.
    • FPIs will not be required to provide investor group details, a provision focused primarily on monitoring equity and corporate debt.
    • FPIs are granted a 30-day window to notify significant changes, as opposed to the previous requirement of 7 days.
  • These changes coincide with the inclusion of Indian G-Secs in major global bond indices like the J.P. Morgan Global EM Bond Index and Bloomberg EM Local Currency Government Index.

• Employee Stock Options (ESOPs) for Founders:

  • The board approved measures allowing founders classified as promoters to retain and exercise ESOPs even after a company's Initial Public Offering (IPO), provided they received such benefits at least one year prior to filing the Draft Red Herring Prospectus (DRHP).
  • This amendment seeks to support founders affected by current regulations mandating liquidation of share-based benefits before an IPO.

• Co-Investment Opportunities for AIFs:

  • SEBI also introduced a proposal permitting Category I and II Alternative Investment Funds (AIFs) to facilitate co-investment schemes within their structure.
  • This will enable AIF managers and sponsors to co-invest alongside other investors into unlisted companies, thereby fostering capital formation.

• Settlement Scheme for Stock Brokers:

  • A settlement scheme will be introduced for stock brokers who had trading activities on the National Spot Exchange Ltd (NSEL) platform and were under enforcement actions by SEBI.
  • This initiative allows brokers to resolve ongoing proceedings quickly.

Implications:

These measures are anticipated to significantly improve corporate governance, ease compliance burdens on investors, and facilitate the seamless operation of investment channels within India. The intent is to foster a conducive environment for investment while ensuring that regulatory frameworks support both domestic and foreign entities.

Summary Points:

• SEBI facilitates voluntary delisting for PSUs with 90% government shareholding.
• Fixed price delisting process requires a minimum 15% premium.
• KYC requirements for G-Secs FPIs to be relaxed, with details on group structures no longer required.
• Founders classified as promoters may retain ESOPs post-IPO.
• Category I and II AIFs can now offer co-investment schemes.
• Introduced a settlement scheme for brokers facing enforcement actions from NSEL trading.