On September 28, 2021, the board of Securities and Exchange Board of India (SEBI) under its board meeting issued frameworks for Gold Exchange, social stock exchange, delisting framework, and superior voting rights shares and approved some amendments.
List of Approved Amendments and frameworks:
- Approved the framework for Gold Exchange
- Approved Framework for social stock exchange
- Eased the Delisting framework to boost the M&A Activity
- Issued framework for the issuance of superior voting rights shares
- Amended norms on Related Party Transactions (RPTs)
- Amended SEBI (Mutual Funds) Regulations
a.SEBI Approved the framework for Gold Exchange and SEBI (Vault Managers) Regulations, 2021:
What is Gold Exchange?
i.Gold Exchange includes the entire ecosystem of trading Electronic Gold Receipt (EGR) and the physical delivery of gold and it would be a national platform for buying and selling EGRs with underlying standardized gold in India.
- Objective: Gold exchange i.e trading of EGR is intended to create ‘one nation one price’ of gold.
ii.Benefits: Efficient and transparent price discovery, investment liquidity, assurance in the quality of gold, increased gold recycling in India, etc.
iii.EGR: The instrument representing gold will be called ‘EGR’ and it will be notified as ‘securities’ under the Securities Contracts (Regulation) Act, 1956.
Who is the Vault Manager?
Vault managers, who are accredited by SEBI, will accept gold deposits, create EGRs, handle gold withdrawal, and periodically reconcile physical gold with the depository records.
Features of the Gold Exchange and Vault Manager Framework:
i.Eligibility: Any recognized stock exchange, existing as well as new, can launch trading in EGRs in a separate segment.
- The recognized stock exchanges will trade EGR and convert EGR into gold with the approval of SEBI.
ii.The Clearing Corporation (CC) will settle the trades, executed on the stock exchange, by transferring EGRs and funds to the buyer and seller.
iii.The Vault Manager will be registered and regulated as a SEBI intermediary, for providing vaulting services meant for gold deposited to create EGRs.
- Eligibility: The Vault Manager should be a body corporate incorporated in India and he should have a net worth of at least Rs 50 crores.
iv.Validity: The EGR will have perpetual (endless) validity, hence the holder could hold the EGR as long as they wish.
v.Withdrawal: The EGR holder, at his discretion, could withdraw the gold from the vaults, by surrendering the EGRs.
- To lower the costs associated with the withdrawal of gold from the vaults, EGRs are made ‘fungible’ (i.e. replaceable) and allow ‘interoperability between Vault Managers’.
b.SEBI Approved Framework for Social Stock Exchange:
The Board approved the creation of the Social Stock Exchange (SSE) for fund raising by Social Enterprises (SE).Social Enterprises eligible to participate in SSE, shall be entities (Non-Profit Organization -NPO and For-Profit Social Enterprise -FPE) having social intent and impact as their primary goals.
- Eligibility: SE will have to engage in a social activity out of the list of 15 broad eligible social activities approved by the Board.
- Eligible NPOs may raise funds through equity, Zero Coupon Zero Principal (ZCZP) bonds, Mutual Funds, Social Impact Funds, and Development Impact Bonds.
- Social Venture Funds under SEBI (Alternative Investment Funds) Regulations will be rechristened as Social Impact Funds (SIFs). The corpus requirements for such funds shall be reduced from Rs.20 Crores to Rs.5 Crores. Further, the reference to “muted returns” shall be removed.
- SEBI shall engage with NABARD, SIDBI and stock exchanges towards institution of a capacity building fund, with a corpus of Rs.100 Crores.
c.SEBI eased the Delisting framework to boost the M&A Activity:
The board approved amending the existing regulatory framework for delisting of equity shares pursuant to open offer as provided under the extant Regulation 5A of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Regulations).
Objective: To make merger and acquisition (M&A) transactions more convenient.
What is an Open offer?
An open offer is an offer made by the acquirer to the shareholders of the target company (a company whose equity shares are listed in a stock Exchange) inviting them to tender their shares in the target company at a particular price.
i.Under the existing framework, an entity acquiring control in a target (listed) company has to make a mandatory open offer to buy a minimum of 26 percent stake share capital of the company.
ii.Following the open offer, if the promoter shareholding increases beyond 75 percent, the acquirer has to bring it down to below the 75 percent threshold before attempting a delisting bid, which again requires the acquirer to increase its stake to 90 percent.
i.SEBI has allowed an acquirer to launch both the open offer and delisting bid simultaneously.
ii.The acquirer needs to disclose the purpose to delist upfront at the time of making an open offer and also the acquirers are mandated to disclose two separate offer prices, one for the open offer and one for delisting.
iii.If the response to the open offer leads to the delisting threshold of 90 percent being met, all shareholders who tender their shares should be paid the same delisting price.
iv.If the delisting threshold of 90 percent is not being met, all shareholders should be paid the same takeover price.
d.SEBI Amended norms on Related Party Transactions (RPTs)
The board has approved the amendments to SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, in relation to regulatory provisions on RPTs.
i.Definition of RPTs: It includes any person/entity holding equity shares in the listed entity, to the extent of 10 percent or more in the company (with effect from April 1, 2023).
ii.Prior approval of the shareholders of the listed entity should be required for material RPTs having a threshold of lower than Rs 1000 crore/ 10 percent of the consolidated annual turnover of the listed entity.
e.SEBI Issued a framework for the issuance of superior voting rights shares:
i.SEBI has relaxed the eligibility requirements related to the Superior Voting Rights (SR) Shares framework to allow the founders of unlisted technology companies more freedom to retain the control of their firms by raising capital.
ii.Background: In 2019, SEBI had introduced the SR framework for issuer companies that are intensive in the use of technology.
- Earlier the SR shareholder should not be part of the promoter group having a net worth more than Rs 500 crore. Now, the threshold has been changed to not more than Rs 1000 crore.
- The minimum gap between the issuance of SR shares and the filing of Red Herring Prospectus is reduced from 6 months to 3 months.
i.The Board approved an amendment to SEBI (Mutual Funds) Regulations, 1996 for the introduction of Silver Exchange Traded Funds with certain regulations.
ii.Silver became the 2nd commodity after the gold that investors will be able to buy through the MF route as exchange-traded funds.
Recent Related News:
In August 2021, The board of SEBI undertook different key decisions at the board meeting on August 06, 2021, regarding the amendments and frameworks related to Accredited Investors, mutual fund (MF) regulations, Alternate Investment Fund (AIF) and others.
About Securities and Exchange Board of India (SEBI):
Establishment – On April 12, 1992, in accordance with the SEBI Act, 1992.
Headquarters – Mumbai, Maharashtra
Chairman – Ajay Tyagi