On August 21, 2019, The Securities and Exchange Board of India (SEBI) relaxed the compliance requirements for Foreign Portfolio Investors (FPI). It modified the norms to boost startups and decided on Rs 1 crore reward for informants in insider trading cases.
i.Municipal Bonds: It relaxed the norms for Municipal bonds/ Muni Bonds to help smart cities and other registered entities working in areas of city planning and urban development work, like municipalities, raise funds through issuance and listing of their debt securities. Smart cities and other registered entities working in areas of city planning and urban development work would be permitted to raise funds by issuing municipal bonds.
ii.ILDM Regulations: SEBI had issued its Issue and Listing of Debt Securities by Municipalities (ILDM) Regulations nearly 5 years ago and since then 7 municipalities have raised nearly Rs 1,400 crore by issuing their debt securities, which are commonly known as ‘Muni Bonds’.
iii.Simplified KYC requirements: SEBI decided to simplify Know Your Client (KYC) requirements for foreign portfolio investors (FPIs) as well as broad based criteria for them.
iv.FPI Categories: FPIs would be classified into 2 categories instead of 3. The requirements for issuance and subscription of offshore derivative instruments (ODIs) would be rationalised. They would be permitted for off-market transfer of securities which are unlisted, suspended or illiquid, to a domestic or foreign investor.
v.Norms to Credit rating agencies: SEBI will amend its regulations for credit rating agencies to ensure that any listed or unlisted entity, before getting rated, gives an explicit consent to the agencies for obtaining full details about borrowings from their lenders.
vi.Norms to start ups: SEBI would permit startups move from the Innovators Growth Platform of stock exchanges to the main board, subject to certain conditions, including that such entities should have a shareholder base of at least 200.
vii.Insider trading: SEBI will reward informants with up to Rs 1 crore cash for any credible inside information through a specially created hotline and also proposed a possible amnesty or settlement for minor wrongdoings in return for cooperation in the probe. These benefits would only be available to individuals and corporates. Professionals like auditors would not be able to use this route as they are duty-bound to report any wrongdoing.
viii.Protection of Investors interest: In order to safeguard the interests of investors from high risk assets, mutual fund houses would be asked to shift all their investments to listed or to-be-listed equity and debt securities in a phased manner as well as reduce their exposure to unrated debt instruments from 25% to 5%.
ix.Buyback of shares: SEBI eased its norms for buyback of shares by listed companies, especially those having subsidiaries in housing finance and Non-Banking Financial Company (NBFC) sectors. The buyback offer cannot exceed 25% of the aggregate paid-up capital and free reserves of the company, but shareholders’ approval is required through a special resolution in case the size exceeds 10%.
x.Pooled Finance Development Funds: SEBI plans to allow the route for other structures where a group of municipalities pool their resources together to jointly raise funds through the issuance of bonds. These structures are generally known as Pooled Finance Development Funds.
xi.Disclosure norm changes: SEBI is also proposing changes relating to accounting, auditing and disclosure of financial statements to take into account the expanded list of eligible entities and the requirements of such entities to get their accounts audited by the Comptroller and Auditor General of India (CAG) and approved by various authorities.
xiii.Minimum Subscription: In case of private placements, the minimum subscription amount per investor is currently Rs 25 lakh, which is being proposed to be reduced to Rs 10 lakh to align it with the regulations for corporate bonds.
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