In its annual report made public on Tuesday, Sebi has proposed several new policy measures for the capital market, focusing on optimising regulations as well as plugging loopholes where required. The key proposals include:
Simplifying IPO documents
Sebi in its annual report said, “It is proposed to simplify the offer document preparation process by designing a template-based approach for relevant sections of an offer document.”
The market regulator noted that offer documents are typically large in size and contain a lot of detailed disclosures on several aspects of an issuer company. There is a general perception that preparing an offer document is a difficult process and the information to be provided is immense and repetitive. Though some rationalisation was done in the SEBI ICDR Regulations, disclosure requirements have been increasing since then. Hence, it is proposed to use a template-based approach for relevant sections of an offer document. Moneycontrol had reported on July 28 that Sebi is working on such a proposal.
Sebi has also proposed a comprehensive review of margin trading funding (MTF). The regulator said that in order to rationalise the applicable risk management framework of the clearing corporations, a comprehensive review exercise is being undertaken with respect to the currently applicable margining framework. Along with this, a review of MTF and the scrips eligible under MTF is also under consideration.
One SIM–One Device–One Client Project
Sebi also mentioned a special project to deal with the issues of spoofing, SIM misuse, unauthorised trades, and wrong transfers. The regulator, in its annual report, said, “To address unauthorised trades in a client’s trading account, a SIM-binding project entailing ‘One SIM–One Device–One Client’ is proposed.” In the new system, the client’s demat login and transactions can be done only after the verification of their unique code, device, and SIM. In the past, there have been instances where fraudulent transactions happened by hacking clients’ accounts. To deal with the misuse of trading terminals, identification of trading terminals for protection against unauthorised trades and misuse is also being considered.
Review of Broker, DP, and RTA regulations
Sebi also intends to review the regulations, especially the Sebi (Stock Brokers) Regulations, 1992. It had formed a working group to look into the regulations and weed out irrelevant and cumbersome provisions, and to add new provisions as per changes in the dynamics of the market and the broker business. The Sebi (Depositories & Participants) Regulations, 2018 will also be reviewed in order to simplify, ease, and reduce the cost of compliance while balancing the need for investor protection, thereby facilitating ease of doing business. The market regulator is also looking to review the SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993. Last week, Sebi floated a consultation paper on the same. A review of parameters for designating a stock broker as a qualified stock broker is also under consideration.
Allowing FPIs in non-cash settled commodity derivative contracts
Sebi said the framework for participation of FPIs in cash-settled non-agri commodity derivatives and their indices was laid down in September 2022. Since then, FPI participation in commodity derivatives has grown in terms of the number of participants and trading turnover. Considering this, and with a view to facilitating ease of doing business as well as enhancing FPI participation, Sebi would be reviewing the existing framework and exploring alternatives to allow FPIs in non-cash settled non-agricultural commodity derivative contracts.
Comprehensive review of AIF Regulations
Sebi said the AIF regulations provide the regulatory framework for AIFs in India, focusing on investor protection, disclosure standards, and responsible fund management. With the objective of optimal regulations without compromising risk-based supervision and oversight of AIFs, an exercise to identify scope for simplification of the regulatory framework is being undertaken.
Review of FPI Regulations and use of digital signatures
Sebi also proposed a detailed review of the Foreign Portfolio Investor (FPI) Regulations, 2019. With the objective of optimal regulations without compromising risk-based supervision and oversight of FPIs, an exercise to identify scope for simplification is being undertaken. It said the use of digital signatures by FPIs can substantially reduce timelines for processing registration applications. Sebi is exploring the feasibility of offering digital signatures from an Indian licensed certifying authority as a value-added service to FPI applicants based on the documentation submitted as part of the common application form.
Sebi also highlighted various regulations that are under review, and for most of them, the regulator has already floated a consultation paper or issued a draft circular for feedback. Some of the proposals include:
Review of MF regulations and expanding the scope for activities
Sebi is planning a comprehensive review of the Mutual Fund Regulations, 1996. A review of the regulatory framework for mutual funds is proposed to ensure that the regulations remain effective, adaptable, and aligned with the evolving market landscape. Sebi also mentioned a review of the activities of mutual fund companies. Based on feedback received from the mutual fund industry, including AMFI, Sebi is in the process of reviewing the restrictions presently prescribed under the regulatory framework for MFs. Sebi has already issued a consultation paper on the same.
Review of valuation of gold and silver ETFs
Sebi is also planning to review the valuation framework of gold and silver ETFs in cases of mutual fund schemes investing in these commodities. Sebi said, “It is proposed to review the guidelines for valuation of gold or silver held by a gold or silver ETF respectively, which presently refer to the price fixed by the London Bullion Market Association (LBMA).” The market regulator had issued a consultation paper in July on the issue.
Classification of REITs and InvITs as equity
The classification of REITs and InvITs as equity is also being considered. Sebi said, “The classification of REITs/InvITs as hybrid instruments is proposed to be reviewed, in light of representations from various stakeholders, certain equity-like features of the instruments, the development of the market ecosystem for such products over the last decade, and global practices.” It had already issued a consultation paper on the same.
Treatment of unclaimed funds and securities
Sebi said that in order to ensure that unclaimed funds and securities of clients lying with the brokers are returned to the respective clients in a timely and efficient manner, it is proposed to have a detailed procedure for treatment of unclaimed funds and securities of clients lying with the brokers, and the steps to be taken in case the client is not traceable despite the best efforts of the brokers. Sebi had issued a consultation paper on the issue in February this year.
Sebi chairman Tuhin Kanta Pandey, in his statement on the annual report, said, “SEBI proposes to initiate a comprehensive exercise to rationalise and optimise existing regulations. It is recognised that excessive or overlapping regulatory requirements can lead to increased compliance costs for intermediaries and create operational rigidities.”
The statement added that, to address this, the focus will be on identifying and removing regulatory redundancies, simplifying procedural requirements, and leveraging technology to ease the compliance burden. Another issue in focus was FPI regulations, including streamlining processes, removing regulatory frictions, and strengthening engagement with FPIs and stakeholders.
The statement also highlighted Sebi’s focus on investor awareness and education, including measures to alert investors on cyber frauds.
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