SEBI Board Meeting outcomes for the September

The September 2022 meeting of SEBI was supposed to be a critical meet as decisions were expected on two crucial items. One was on closer monitoring and disclosure for digital and other IPOs. Second was whether the mutual fund units would also get included under the definition of Insider Trading Regulations, especially after the Templeton fiasco in April 2020. Here is a quick recap of some important decisions made by SEBI at the September 2022 board meeting.

    1) In the light of the slew of digital IPOs that are trading way below their IPO prices, SEBI had promised better disclosures. Now all IPOs have to disclose key performance indicators (KPIs) to enable investors to take a more informed view. The IPO bound companies must disclose price of all placements in last 3 years plus the ratio of the IPO price to weighted average cost of acquisition (WACA). In addition, an independent committee of directors must certify that the suggested price band for the IPO is justified based on quantitative factors provided. This will be applicable for all future IPOs.

    2) Companies can pre-file IPO offer documents without disclosing sensitive data for quicker approval. In the case of OFS, cooling off period has been cut from 12 weeks to 2 weeks while retail investors can now bid for the unsubscribed non-retail portion. In addition, SEBI wants credit rating agencies (CRAs) to monitor use of issue proceeds even in QIPs (qualified institutional placements) and private placements where issue size exceeds Rs100 crore. This is in addition to this rule being valid for public and rights issues. 

    3) On the mutual funds front, the time limit for pay-out of dividends and redemption proceeds has been cut from 10-15 days to just 3-5 days to reduce liquidity lock-in. In the aftermath of the Templeton MF fiasco of April 2020, SEBI approved inclusion of mutual fund units under SEBI provisions for insider trading. The trades of senior KPIs at MFs in units will also be monitored where there is inside and privileged information. This will be over and above the monitoring of stock positions that is already happening. 

    4) For alternate investments, the SEBI board meeting took some important decisions. Now, all online bond platforms providers must be registered as stock brokers with SEBI under the debt segment. In the case of real estate investment trusts (REITs), the minimum holding requirement of sponsors is reduced from 25% to 15% to put them at par with INVITs. Also the separate regulatory framework for unlisted INVITs is being scrapped and merged into the existing INVIT regulatory framework. In an interesting development, SEBI has announced that in the case of open offers, the offeror can deposit bank guarantee (BG) instead of upfront cash. However, such BG must be given by a scheduled commercial bank (SCB) with “AAA” rating.

    5) An important shift in the SEBI regulatory and compliance framework pertains to net settlement of cash and F&O. One exception to this net settlement system has been upon expiry of F&O positions. Now, SEBI will allow net settlement of cash and F&O segment even upon expiry of stock derivatives, allowing the obligations arising under cash segment to be settled on  net basis. This will help to better align the cash and F&O segments and also reduces the additional margin requirements post expiry of F&O.

    6) Currently, the appointment of independent directors as well as their removal have to be mandatorily authorized by special resolutions only. Going ahead, the regulator has stipulated that the appointment of independent directors and their removal can be effected through an ordinary resolution itself, to make things more flexible for companies.

    7) It has been observed that in most public sector OFS, the historical pricing can be a roadblock and that does not permit control premium to be paid. Therefore, in a significant move, SEBI has done with the 60 days VWAMP (value weighted average market price) consideration for pricing of public sector units offers for sale (OFS). This is specifically when there is likely to be a change in control from the government to a private party. This is likely to help the sale of IDBI Bank to a strategic investor.

Overall, SEBI has tried to pack a lot of new idea into its latest board meet. It is perhaps a sign of more such shifts to come in the future.