The Securities and Exchange Board of India (SEBI) Board conducted its 208th meeting on 18th December 2024, in Mumbai to develop significant measures to improve the business environment in the capital markets.
- The meeting’s agenda was to formulate reforms for primary markets, small and medium enterprises (SMEs), and mutual funds, among others.
- The main objective of the measures was to boost investor protection, encourage transparency, and facilitate smoother operations within these sectors.
Review of SEBI (Merchant Bankers) Regulations, 1992
SEBI has undertaken a comprehensive review of the SEBI (Merchant Bankers) Regulations, 1992.The amendments made are –
i.Merchant Bankers (MBs), other than Banks, Public Financial Institution and their subsidiaries, shall undertake only permitted activities.
- MBs may carry out other regulated activities as a separate business unit with a separate brand name, within a period of 2 years after obtaining registration/ confirmation from the respective regulatory authority
ii.There will be two categories of MBs based on net worth and activities.
- Category 1 -Net worth not less than Rs. 50 crores and allowed to undertake all permitted activities
- Category 2 -Net worth not less than Rs. 10 crores and allowed to undertake all permitted activities except managing equity issues on the Main Board.
iii.They should maintain a liquid net worth of at least 25% of the minimum net worth requirement, at all times.
iv.MBs are required to earn revenue from permitted activities as follows-
- Category 1: revenue of at least Rs. 25 crores, on a cumulative basis, in three immediately preceding financial years.
- Category 2: revenue of at least Rs. 5 crores, on a cumulative basis, in three immediately preceding financial years.
v.The underwriting limit for MBs has been prescribed as 20 times of liquid net worth.
SEBI tightens rules for IPOs of small firms
The SEBI Board has approved amendments to the SEBI Issue of Capital and Disclosure Requirements (ICDR) Regulations, 2018 and SEBI Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015 in order to make efficient public issues which include following-
i.An issuer shall make an Initial Public Offer (IPO), only with an operating profit (earnings before interest, depreciation and tax) of Rs. 1 crore from operations for any 2 out of 3 previous financial years at the time of filing of its draft red herring prospectus (DRHP).
ii.Offer for sale (OFS) by selling shareholders in SME IPO shall not exceed 20% of the total issue size and they cannot sell more than 50% of their holding.
iii.Lock-in for 50% promoters’ holding in excess of minimum promoter contribution (MPC) shall be released after 1 year and remaining 50% shall be released after 2 years.
iv.Allocation methodology for non-institutional investors (“NIIs”) in SME IPOs to be aligned with methodology used for NIIs in main board IPOs.
v.Amount for General Corporate Purpose (GCP) shall be capped to 15% of amount being raised by the issuer or Rs. 10 crores, whichever is lower.
vi.SME issues will not be permitted for repayment of Loan from Promoter, Promoter Group or any related party, from the issue proceeds, whether directly or indirectly.
vii.DRHP of SME IPO filed with the Stock Exchanges to be made available for 21 days for public.
viii.The threshold for considering Related party transaction (RPT) as material shall be 10% of annual consolidated turnover or Rs. 50 crores, whichever is lower.
Amendments to SEBI SDI Regulations, 2008
The SEBI Board has approved the following amendments for Securitised Debt Instruments (SDI) Regulations, 2008
i.The SDIs issuance and its transfer should be listed only in demat form.
ii.The minimum ticket size for a single investor:
- For originators regulated by the Reserve Bank of India (RBI), Rs 1 crore at initial subscription and no specification for subsequent transfers
- Rs.1 crore for originators that are not regulated by RBI for both initial and subsequent transfers
- For SDIs backed by listed securities, the amount shall be the highest face value among such listed securities for both initial and subsequent transfers.
iii. No single obligor should have more than 25% of the asset pool provided and must have a track record of operations spanning 3 financial years.
iv.The offer period will range from minimum 2 working days and maximum 10 working days.
Sebi introduces new measures to curb misleading investment return claims
i.The SEBI has launched a new initiative, the “Past Risk and Return Verification Agency” (PaRRVA), to prevent misleading claims about investment returns. This verification system will act like an ISI mark for financial claims.
ii.A Credit Rating Agency (CRA) shall act as PaRRVA with a recognized stock exchange serving as PaRRVA Data Centre (PDC).
iii.It will carry out the verification of risk-return metrics for Investment Advisors (IAs), Research Analysts (RAs) and Algorithmic Trading, and those persons permitted by the Board to offer these services.
iv.PaRRVA is SEBI’s response to the rampant misuse of terms like “best performing” and “top ranked” in advertisements and promotional material.
Review of provisions regarding corporate governance norms for HVDLEs
i.The SEBI board has increased the threshold for identification of High Value Debt Listed entities (HVDLEs) from Rs.500 crores to Rs. 1000 crores which is at par with the large Corporates.
ii.A separate chapter, and a sunset clause has been introduced for corporate governance norms in the LODR Regulations applying to entities having only debt listed securities.
Review of SEBI (Custodian) Regulations, 1996
i.The SEBI Board mandated Custodians to maintain a net worth of Rs. 75 crores and shall be achieved within 3 years.
ii.A framework for Business Continuity Plan and Disaster Recovery shall be adopted for orderly winding down and enhanced obligations, similar to that of Qualified Stock Brokers.
iii.The vaults are required only by the custodian who is holding any physical securities.
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About Securities and Exchange Board of India (SEBI):
SEBI is a statutory body and a market regulator, which controls the securities market in India. It was constituted as a non-statutory body on April 12, 1988 through a resolution of the Government of India and was established as a statutory body in the year 1992.
Chairperson– Madhabi Puri Buch
Headquarters– Mumbai, Maharashtra
