The Securities and Exchange Board of India (SEBI) took a number of decisions at its board meeting on March 29, 2023, with the goal of protecting investors’ interests and bolstering the market infrastructure to handle disruptions.
- The announcements at the meeting, which included 17 items, were by far the largest number in recent history.
- 17 announcements include 16 major decisions and approval of SEBI budget estimates for the fiscal year 2023–2024 (FY24).
These actions will strengthen the market and have a long-term positive impact, despite the fact that they are being taken in the midst of a worldwide banking crisis and challenging macroeconomic conditions.
The 16 Major Decisions and Their Implications
ESG Related
1.Balanced Framework for ESG Disclosures, Ratings and Investing
To encourage a balanced approach to ESG, SEBI approved the legal framework for ‘ESG (Environmental, Social, and Governance) Disclosures, Ratings, and Investing’, as well as amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, and SEBI (Mutual Funds) Regulations, 1996.
The following are a few notable decisions made by the Board in this regard:
On ESG Disclosures
i.The BRSR (Business Responsibility and Sustainability Report) Core will be implemented to improve the reliability of ESG disclosures.
ii.The BRSR Core comprises a limited number of Key Performance Indicators (KPIs) for which listed entities must gain reasonable assurance.
iii.For the application of BRSR Core, a glide path is specified, beginning with the top 150 listed entities (by market capitalization) from FY 2023-24 and subsequently expanding to the top 1000 listed entities by FY 2026-27.
ESG disclosures for value chain of listed entities
i.To promote transparency, ESG disclosures and assurance (BRSR Core only) will be established for the value chain of listed entities, with specific thresholds.
ii.These will be applicable to the top 250 listed entities (by market capitalization) on a comply-or-explain basis starting from fiscal years 2024-25 and 2025-26, respectively.
On ESG Ratings
i.Given that emerging markets have unique environmental and social concerns, ESG Rating Providers (ERPs) must include India/emerging market factors in their ESG Ratings.
ii.ERPs shall offer a specific category of ESG Ratings called “Core ESG Rating” that is based on the assured parameters under BRSR Core in order to increase the credibility of ESG Ratings.
On ESG Investing
i.SEBI has directed the implementation of special measures in order to minimise the risk of mis-selling and greenwashing, improve stewardship reporting requirements, and promote ESG investing.
ii.It has required ESG schemes to invest at least 65% of their AUM in listed firms that provide assurance on the BRSR Core.
- Establishing a regulatory framework for Environmental, Social and Governance (ESG) Rating Providers in Securities Market by introducing a new chapter in the SEBI (Credit Rating Agencies) Regulations, 1999.
The Board approved the proposals regarding the establishment of a regulatory framework for ESG rating providers (ERPs) in the Indian securities market, as well as associated proposals.The proposals are
- enhanced transparency in ESG rating rationales,
- measures to mitigate conflict of interest by ERPs,
- facilitating augmentation of transition finance in India, and
- facilitating ESG ratings based on assured data
Secondary Market Related
3.ASBA -like facility for trading in Secondary Market: Option to investors
i.The Board has given its approval to the broad proposal for the Application Supported by Blocked Amount (ASBA)-like facility that will be made available to investors for secondary market trading.
- The service is based on the blocking of funds for secondary market trade via UPI.
- This facility will be optional for both investors and stock brokers.
4.Upstreaming of clients’ funds by Stock Brokers (SBs) / Clearing Members (CMs) to Clearing Corporations (CCs) to mitigate credit risk on intermediaries
i.The Board agreed to a proposal to establish a regulatory framework on the upstreaming of client funds by SBs/non-bank CMs to CCs in order to reduce the credit risk on intermediaries and risk of potential client funds misuse.
- Under the approved framework, clients’ funds shall be upstreamed by SB/ non-bank CMs to CCs on End of Day basis, so as to ensure that clients’ funds are not retained by SBs/non-bank CMs.
- The funds shall be upstreamed only in the form of cash, lien on Fixed Deposit Receipts (subject to certain conditions), or pledge of units of Mutual Fund Overnight Schemes (MFOS).
- The framework shall not be applicable to Bank-CMs (including Custodians that are banks), and for proprietary funds of SBs/CMs in any segment.
ii.The framework is expected to be implemented in two phases, with the first phase of the glide path scheduled to begin on July 1, 2023.
5.Amendments to Stock Brokers Regulations to institute a formal mechanism for prevention and detection of fraud or market abuse by stock brokers.
i.The Board has approved a framework to offer an institutional mechanism for the prevention and detection of fraud or market abuse by stock brokers.
Accordingly, SEBI (Stock Brokers) Regulations, 1992 will be amended to provide as under:
- Systems for surveillance of trading activities and internal controls;
- Obligations of the stock broker and its employees;
- Escalation and reporting mechanisms; and
- Whistle blower policy.
ii.As a result, the SEBI (Stock Brokers) Regulations, 1992 will be amended, and the approved amendments will take effect on October 1, 2023.
6.Introduction of Regulatory Framework for Index Providers
i.The Board has given its in-principle approval to a proposal to regulate Index Providers with the objective of promoting accountability and transparency in the governance and administration of financial benchmarks in the securities market.
ii.All index providers, including MSCI, would be subject to SEBI regulations.
Mutual Funds Related
7.Framework for “Corporate Debt Market Development Fund”: Backstop Facility for specified Debt Funds during market dislocations
i.The Board approved amendments to the SEBI (Alternative Investment Funds) Regulations, 2012, to establish the Corporate Debt Market Development Fund (CDMDF) as an Alternative Investment Fund (AIF).
ii.CDMDF will serve as a backstop facility for the purchase of investment-grade corporate debt instruments at times of stress, instilling confidence among Corporate Bond Market participants and generally improving secondary market liquidity.
iii.In the event of a market disruption, CDMDF may raise funds based on a guarantee that will be given by the National Credit Guarantee Trust Corporation (NCGTC) to purchase corporate debt securities.
8.Bringing clarity on the roles and responsibilities of Trustees and Board of Asset Management Companies of Mutual Funds with a focus on Unit holder protection.
In order to clarify the roles and responsibilities of the Trustees and Board of Asset Management Companies (AMCs) of mutual funds (MFs), the Board approved amendments to the SEBI (Mutual Funds) Regulations, 1996.
The aforesaid amendment shall also explicitly make the Board of AMC responsible for protecting unitholders’ interests, in addition to AMC stakeholders’ interests and will provide for the constitution of a Unitholder Protection Committee by the Board of the AMC with a focus on unitholders’ protection.
9.Review of Regulatory Framework for Sponsors of Mutual Funds to give greater flexibility to the industry
The Board approved amendments to the SEBI (Mutual Funds) Regulations, 1996, which offered an alternative route to enable a wide set of entities to become sponsors of MFs while reinforcing the existing eligibility standards for sponsors.
Shareholder Empowerment Related
10.Amendments to SEBI (Listing Obligations and Disclosure Requirements) Regulations to facilitate more comprehensive and timely disclosure
After considering various suggestions from stakeholders, the Board approved the following amendments to the Listing Obligations and Disclosure Requirements (LODR) Regulations:
- Disclosure of material events or information by listed entities
- Enhancing corporate governance at listed companies by empowering shareholders
- Streamlining the timeline for newly listed entities to submit their first financial results
- Timeline for filling vacancies among directors and other officers of listed entities –Listed entities shall be required to fill up the vacancy of Directors, Compliance Officer, Chief Executive Officer and Chief Financial Officer within a period of three months from the date of such vacancy, to ensure that such critical positions are not kept vacant
The Board has approved amendments to the Issue of Capital and Disclosure Requirements (ICDR) Rules, among other things, on the following issues:
- Disclosures about underwriting
- Prerequisite for announcing the bonus issue and exclusively issuing bonuses through demat accounts (dematerialised form)
Debt Market Related
12.Introduction of concept of General Information Document (GID) and Key Information Document (KID) for issuance of Bonds/ Commercial Paper and streamlining of disclosures
i.This will be set up to eliminate numerous filings of placement memoranda by issuers for non-convertible securities and commercial paper intended for listing, as well as to improve ease of doing business for issuers.
ii.At the time of the first issuance, a GID must be filed with the stock exchanges and contain the information and disclosures outlined in the common schedule. The validity of the GID shall be for 1 year.
iii.The concept is proposed to be applied on a ‘comply or explain’ basis until March 31, 2024, after which it becomes mandatory.
13.Extension of “Comply or Explain” period for Large Corporates (LCs) to meet their financing needs from debt market through issuance of debt securities to the extent of 25% of their incremental borrowings in a financial year
The Board determined that a contiguous block of 3 years will replace the previous contiguous block of 2 financial years as the period of compliance for large corporations to meet their financing needs from debt markets through the issuing of debt securities to the extent of 25% of their incremental borrowings.
14.Extension Of ‘Comply or Explain’ period for the High Value Debt Listed Entities (HVDLEs) in respect of corporate governance norms and simplification of disclosure requirements pertaining to the payment of interest/ coupon and redemption amount.
The Board made the decision to extend the “comply or explain” period for the HVDLEs in regards to corporate governance standards (i.e., regulations 16 to 27 of the LODR Regulations) until March 31, 2024.
To enhance ease of doing business for issuers of non-convertible securities, the disclosure requirements pertaining to the payment of interest/ coupon and redemption amount are being streamlined and multiple filings are being eliminated.The Board approved the proposal to consolidate the disclosure requirements under Regulation 57 of the LODR Regulations.
Alternative Investment Fund (AIF) Related
15.Amendment to Alternative Investment Funds Regulations to prescribe provisions for valuation of investments, dematerialisation of units, certification requirement for key employees of Investment Manager, transactions with associates, and option to sell unliquidated investments to a new scheme of Alternative Investment Funds
i.SEBI will direct Alternative Investment Funds (AIFs) towards a consistent and standardized approach to valuing their investment portfolios.
ii.It has directed AIFs to dematerialize all units for all new and existing schemes with a corpus of more than Rs. 500 crore by October 31, 2023 in order to protect investors from operational risks and fraud.
iii.Existing AIF schemes with corpuses less than Rs. 500 crore are required to dematerialize their units by April 30, 2024.
Investor Grievances Redressal Related
16. Strengthening the Investor Grievance Redressal Mechanism in the Securities Market through amendments to Regulations to operationalize Online Dispute Resolution (ODR) Mechanism for investors across registered intermediaries / regulated entities
SEBI Budget
17. The SEBI Board has given its approval to the SEBI budget estimates for the fiscal year 2023–2024 (FY24).
Click here for official notification
Recent Related News:
i.SEBI revised its operational guidelines for Credit Rating Agencies (CRAs), mandating that by March 31, 2023, they have a detailed policy in place regarding the non-submission of crucial information by issuers, including quarterly financial numbers.
ii.SEBI stated in its circular for CRAs dated February 3, 2023, that these requirements would be in effect by March 31, 2023. Prior to that, SEBI issued an operational circular on CRAs in January 2023, which was to take effect on February 1, 2023.
About the Securities and Exchange Board of India (SEBI):
Chairperson– Madhabi Puri Buch
Headquarters– Mumbai, Maharashtra
Establishment– 1992
