By IE&M Research
The Securities and Exchange Board of India (Sebi) has got a new chairman. As it was expected, in the very first meeting the new chairman Ajay Tyagi has put his marks which is clearly visible in the decisions taken. Some long pending demands and plans were cleared like norms relating to capital raising, IPOs, mutual funds, equity and commodity derivatives trading etc. Some of them are in fact sweeping changes.
First of all, Non-resident Indians (NRIs) will not be allowed to buy participatory notes.
Second: To ensure that funds raised are not misused, Sebi has decided to monitor how companies which raise more than ` 100 crore in IPOs use these proceeds although the actual monitoring would be done by an external agency. Earlier, the floor was ` 500 crore. The regulator has made it compulsory for companies to appoint a monitoring agency and the agencies will have to submit their report every quarter now and companies will have to publish this report on their websites besides sending to stock exchanges.
Third: Allowing investors to use e-wallets to buy mutual funds of up to ` 50,000 per financial year, Sebi has agreed to a much needed demand. Now investors can instantly redeem liquid mutual funds up to ` 50,000 a day, or 90% of the folio value, whichever is lower. Currently, money from redeeming a mutual fund gets credited to a customer’s account only on the next working day or two days after the request if it is not done through the immediate payment service (IMPS), placing liquid funds at a disadvantage to bank fixed deposits. This is certainly going to increase inflows into mutual funds market.
The regulator said e-wallet issuers must not offer any incentive such as cash-back payments. It also stipulated that only e-wallet balance loaded through cash or debit card or net banking (and not credit cards) could be used for such investments.
Fourth: Sebi has given the green signal for options contracts in commodity derivatives. This has been pending for a long time. The finance minister had mentioned this in the February 2016 budget. For this Sebi needs to amend SECC regulations to allow options that have commodity futures as underlying. Sebi is proposing to amend the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012. This will allow commodity exchanges to launch options products that can be settled by converting them to futures a day before the expiry of the contract.
Sebi has also given shape to the announcement regarding reduction of costs for financial intermediaries made by the finance minister while presenting the union budget for the current fiscal. For this it will amend stock broker regulations to integrate stock brokers in equity and commodity derivative markets. This will enable the same entity to operate in both markets.
Non-banking finance companies with a net worth of at least ` 500 crore will be classified as qualified institutional buyers. Half the shares in initial public offers are allotted to QIBs. Such NBFCs should have a net worth of at least ` 500 crore.
Bank and public financial institutions get a relaxation relating to preferential allotment to deal better with the bad loans issue. Typically, companies cannot make preferential allotment of shares to any entity which has sold their shares during the six months preceding the issue date. But many banks found themselves on the wrong side of these regulations when they had to sell shares of companies whose bad debt they had to convert to equity. This criterion has been relaxed.