POLICY DEVELOPMENTS IN INDIAN SECURITIES MARKET
Transactions in Corporate Bonds Through Request for Quote Platform by Stock Brokers
SEBI has taken steps to increase the liquidity on Request for Quote (RFQ) platform of stock exchanges to enhance transparency and disclosure pertaining to trading in secondary market in corporate bonds. Certain stipulations were made for transactions on RFQ platform by mutual funds, portfolio management services and alternate investment funds.
To increase liquidity of corporate bonds (CBs) on RFQ platform by SBs, it was advised that stock brokers shall undertake at least ten per cent of their total secondary market trades by value in CBs in that month on the RFQ platform of SBs. From next fiscal, the minimum percent to be traded shall increase to 25 per cent.
Source : SEBI/HO/MIRSD/MIRSD-PoD-1/P/ CIR/2023/083 dated June 02, 2023
Upstreaming of Clients’ Funds by Stock Brokers/ Clearing Members to Clearing Corporations
SEBI, via circulars has provided necessary directions/guidelines to stock brokers (SBs)/ clearing members(CMs) to ensure orderly functioning of the securities market and protect investors interest. To further safeguard clients’ funds placed with SBs/CMs, SEBI has come up with a framework, according to which all client funds received by SBs/CMs shall be upstreamed to the clearing corporations (CCs).
As per this framework, no clients’ funds shall be retained by SBs/ CMs on End of Day basis. All client funds shall be upstreamed by SB/ CMs to CCs in either cash or lien on fixed deposit receipt or pledge of units of Mutual Fund Overnight Schemes.
Source : SEBI/HO/MIRSD/MIRSD-PoD-1/P/ CIR/2023/84 dated June 08, 2023
Participation of Mutual Funds in Repo Transactions on Corporate Debt Securities
In 2011, SEBI allowed mutual funds to participate in repo transactions on corporate debt securities. Recently SEBI prescribed certain norms for mutual POLICY DEVELOPMENTS IN INDIAN SECURITIES MARKET funds to invest in corporate debt securities. As per the new norms, mutual funds can participate in repos only in listed AA and above corporate debt securities and Commercial Papers and Certificate of Deposits). For transactions where settlement is guaranteed by a clearing corporation, the exposure shall not be considered for the purpose of determination of investment limits for single issuer, group issuer and sector level limits.
Source : SEBI/HO/IMD/IMD PoD-2/P/CIR/ 2023/85 dated June 08, 2023
Online Processing of Investor Service Requests and Complaints by RTAs
Currently holders of physical security certificates are required to submit various documents to Registrars to an Issue & Share Transfer Agents (RTAs) for any service request or complaint. To become more investor friendly, SEBI proposed to digitize the whole process in two phases. A mechanism is provided for investors to lodge service requests and online complaints and track status to get periodical updates.
Source : SEBI/HO/MIRSD/MIRSD-PoD-1/P/ CIR/2023/72 dated June 08, 2023
Regulatory Framework for Execution Only Platforms for Facilitating Transactions in Direct Plans of Schemes of Mutual Funds
Most investment advisors /stock brokers provide their technology/digital platforms for investors (not necessarily their investors) to purchase direct plans of mutual funds. Currently there exists no specific framework to provide execution-only services in direct plans of mutual funds. To strike a balance between investor convenience and investor protection, SEBI prescribed a framework for Execution Only Platforms for transacting in direct plans of mutual funds. SEBI (Stock Brokers) Regulations, 1992 have been amended accordingly.
Source : SEBI/HO/IMD/IMD-PoD-1/P/CIR/ 2023/86 dated June 13, 2023
Amendment to Circular on Issue of Certified Copies of Orders and Circulars
SEBI in 2019 issued a circular on issue of certified copies of orders and circulars to streamline procedure for issuance of certified copies of orders and circulars based on requests for certified copies of orders passed by the Board, Adjudicating Officers or Recovery Officers or circulars issued by the departments of the Board.It has been decided to do away with the acceptance of demand draft with respect to the fee charged for the certified copies of orders and circulars. Accordingly, the concerned paragraphs were modified and the 2019 circular was amended
Source : SEBI/HO/LAD1/LAD1_DoP3/P/ CIR/2023/88 dated June 13, 2023
Amendment to Guidelines on Anti-Money Laundering Standards and Combating the Financing of Terrorism /Obligations of Securities Market Intermediaries under the Prevention of Money Laundering Act, 2002 and Rules Framed there under
SEBI in February 2023 issued a Master Circular on Anti-Money Laundering (AML) Standards and Combating the Financing of Terrorism (CFT). Government of India through gazette notification S.O. 1074(E) dated March 07, 2023 amended Prevention of Money Laundering (Maintenance of Records) Rules, 2005. To comply with these amendments and to further enhance the effectiveness of AML/CFT framework, SEBI amended and modified certain provisions of the aforesaid Master Circular.
Source :SEBI/HO/MIRSD/MIRSDSECFATF /P/CIR/2023/091 dated June 16, 2023
Adherence to provisions of regulation 51A of SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 by Online Bond
Platform Providers on Product Offerings on Online Bond Platforms Regulation 51A of SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (NCS Regulations) defines online bond platform provider. SEBI in a circular in November, 2022 (‘OBP Circular’) provided framework for registration and regulation of Online Bond Platform Providers.
Online Bond Platform Providers have commenced operations, but it was observed that some of them were performing practices not complying with the norms of OBP circular and NCS Regulations.
SEBI also received representations from Online Bond Platform Providers to permit them to offer other regulated and listed securities such as Government Securities, Commercial Paper etc. on Online Bond Platforms. Accordingly, SEBI amended certain provisions of the OBP circular and issued fresh advisories to Online Bond Platform Providers.
Source : SEBI/HO/DDHS/POD1/P/CIR/ 2023/092 dated June 16, 2023
Trading Preferences by Clients
SEBI in 2011 vide a circular prescribed trading account related details, to be provided by clients while opening a trading account with a stock broker, according to which clients need to give separate authorization/ letter in case they want to trade on different stock exchange for the same segment.
Based on the representations received and in consultation with stock exchanges, it was decided to standardize format of “Trading Preferences” to ensure that clients are permitted to access all stock exchanges in which the stock brokers are registered for the same segment. All stock brokers while on boarding new clients must obtain their trading preferences.
For existing clients, stock brokers shall offer them access on all stock exchanges for segments opted by them, as a default mode, within three months.
Source : SEBI/HO/MIRSD/MIRSD-PoD-1/P/ CIR/2023/95 dated June 21, 2023
Issuance of Units of AIFs in Dematerialised Form
SEBI (Alternative Investment Funds) Regulations, 2012, were recently amended and notified on June 15, 2023. As per the regulation, AIFs shall issue units in dematerialised form subject to the conditions specified by SEBI. Some changes were made to certain schemes.
Further, the terms of transfer of units of AIF held by an investor in dematerialised form shall continue to be governed by the terms of private placement memorandum, agreements entered between the AIF and the investors and any other fund documents.
Source : SEBI/HO/AFD/PoD1/CIR/2023/96 dated June 21, 2023
Standardised Approach to Valuation of Investment Portfolio of Alternative Investment Funds
SEBI (Alternative Investment Funds) Regulations, 2012, were recently amended and notified on June 15, 2023. As per Regulation 23(1), AIFs are required to carry out valuation of their investments in the manner specified by SEBI. Certain changes regarding manner of valuation of AIF’s investments, responsibility of manager of AIF with regard to valuation of investments of AIF, eligibility criteria for Independent Valuer and reporting of valuation of investments of AIF to performance benchmarking agencies in norms regarding valuation of AIFs were made and a fresh circular was issued by SEBI..
Source : SEBI/HO/AFD/PoD/CIR/2023/97 dated June 21, 2023
Modalities for Launching Liquidation Scheme and for Distributing the Investments of Alternative Investment Funds in-specie
SEBI (Alternative Investment Funds) Regulations, 2012 were amended and notified on June 15, 2023 to provide flexibility to AIFs to deal with investments of their schemes which are not sold due to lack of liquidity during the winding up process, by either selling such investments to a new scheme of the same AIF (‘Liquidation Scheme’) or distributing such unliquidated investments inspecie.
Regulation 2(1)(pb), 2(1)(pc) and 29(9) were inserted. Accordingly, among other inclusions, it was specified that during the Liquidation Period of a scheme of an AIF (‘Original Scheme’), if the AIF decides to launch Liquidation Scheme, the AIF shall obtain consent of 75 per cent investors by value of their investment in the Original Scheme.
The scheme launched by the AIF for this purpose shall contain the words ‘Liquidation Scheme’ in its name. During the Liquidation Period of an Original Scheme of an AIF, if the AIF decides to distribute unliquidated investments in-specie, the AIF shall obtain consent of 75 per cent of investors by value of their investment in the Original Scheme.
If the AIF fails to obtain requisite investor consent for launch of Liquidation Scheme or in-specie distribution of unliquidated investments, then the unliquidated investments shall be mandatorily distributed to investors in-specie, without requirement of obtaining consent of 75 per cent of investors by value of their investment in the scheme of the AIF.
Source: SEBI/HO/AFD/PoD1/CIR/2023/98 dated June 21, 2023
Trading Supported by Blocked Amount in Secondary Market
In its continuing endeavour to provide protection to investors from default of member(s) (Trading Member (TM)/ Clearing Member (CM)], SEBI decided to introduce a supplementary process for trading in secondary market based on blocked funds in investor’s bank account, instead of transferring them upfront to the trading member, thereby providing enhanced protection of cash collateral.
This new facility shall be provided by integrating Reserve Bank of India approved UPI block facility. Under this, funds shall remain in the account of client but will be blocked in favour of the clearing corporation (CC) till the expiry date of the block mandate or till block is released by the CC, or debit of the block towards obligations arising out of the trading activity of the client, whichever is earlier.
Further, settlement for funds and securities will be done by the CC without the need for handling of client funds and securities by the member. Further, UPI block upon creation shall be considered towards collateral, the same shall also be available for settlement purposes. For the clients who prefer to block lump sum amount, their block can be debited multiple times, subject to available balance, for settlement obligations across days.
Source : SEBI/HO/MRD/MRD-PoD-2/P/ CIR/2023/99 dated June 23, 2023
Format of Compliance Report on Governance for InvITs
Regulation 26K of SEBI (Infrastructure Investment Trusts) Regulations, 2014 requires investment manager to submit quarterly compliance report on governance in prescribed format to recognized stock exchanges within twenty-one days from the end of each quarter. The report needs to be signed either by Compliance Officer or Chief Executive Officer of the investment manager.
Accordingly, formats of compliance report on Governance were prescribed. The investment manager of the InvIT shall submit the compliance report on governance to the stock exchanges within specified timeline. The compliance report on governance shall also be made part of the Annual Report of the InvIT.
Further the Stock Exchanges shall monitor compliance of these requirements and can take appropriate action as specified by the Board.
Source : SEBI/HO/DDHS-PoD-2/P/CIR/ 2023/100 dated June 26, 2023
Format of Compliance Report on Governance for REITs
Regulation 26E of SEBI (Real Estate Investment Trusts) Regulations, 2014 requires investment manager to submit quarterly compliance report on governance in prescribed format to recognized stock exchanges within twenty-one days from the end of each quarter.
The report needs to be signed either by Compliance Officer or Chief Executive Officer of the investment manager. Accordingly, formats of compliance report on Governance were prescribed. The investment manager of the REIT shall submit the compliance report on governance to the stock exchanges within specified timeline.
The compliance report on governance shall also be made part of the Annual Report of the REIT. Further the Stock Exchanges shall monitor compliance of these requirements and can take appropriate action as specified by the Board.
Source : SEBI/HO/DDHS-PoD-2/P/CIR/ 2023/101 dated June 26, 2023
Format for Annual Secretarial Compliance Report for InvITs Regulation 26J of SEBI (Infrastructure Investment Trusts)
Regulations,2014 requires Investment Manager to submit a secretarial compliance report given by a practicing Company Secretary to the stock exchanges in specified format within sixty days from end of each financial year. The secretarial compliance report shall be annexed with the Annual Report of the InvIT.
Accordingly, it was advised that the investment manager of the InvIT, on an annual basis, shall appoint a practicing Company Secretary to examine compliance of all applicable SEBI Regulations and circulars/ guidelines issued and the practicing Company Secretary shall submit a report to the Investment Manager of the InvIT.Investment Manager of the InvIT shall provide such documents/information sought by the practicing Company Secretary for providing secretarial compliance report. The Investment manager of the InvIT shall submit the annual secretarial compliance report in prescribed format to the stock exchanges within sixty days from the end of each financial year.
The annual secretarial compliance report shall also be made part of Annual Report of the InvIT. Further the stock exchanges shall monitor the compliance and may take appropriate action as specified by the Board.
Source : SEBI/HO/DDHS-PoD-2/P/CIR/ 2023/102 dated June 26, 2023
Format for Annual Secretarial Compliance Report for InvITs
Regulation 26J of SEBI (Infrastructure Investment Trusts) Regulations,2014 requires Investment Manager to submit a secretarial compliance report given by a practicing Company Secretary to the stock exchanges in specified format within sixty days from end of each financial year. The secretarial compliance report shall be annexed with the Annual Report of the InvIT.
Accordingly, it was advised that the investment manager of the InvIT, on an annual basis, shall appoint a practicing Company Secretary to examine compliance of all applicable SEBI Regulations and circulars/ guidelines issued and the practicing Company Secretary shall submit a report to the Investment Manager of the InvIT.
Investment Manager of the InvIT shall provide such documents/information sought by the practicing Company Secretary for providing secretarial compliance report. The Investment manager of the InvIT shall submit the annual secretarial compliance report in prescribed format to the stock exchanges within sixty days from the end of each financial year.
The annual secretarial compliance report shall also be made part of Annual Report of the InvIT. Further the stock exchanges shall monitor the compliance and may take appropriate action as specified by the Board.
Source : SEBI/HO/DDHS-PoD-2/P/CIR/ 2023/103 dated June 26, 2023
Investor Service Centres of Stock Exchanges
SEBI in 1997 advised all stock exchanges (SEs) to open or maintain at least one Investor Service Centre (ISC) for the benefit of investors. Major Stock Exchanges were allowed to open as many ISCs as required.
Subsequently from time to time by multiple circulars, ISC requirements were modified and SEs having nationwide terminals were mandated to open ISCs in selected twelve cities. Considering the recent technological advancements in securities market, a need was felt to review the provisions related to ISCs. Based on consultation with stock exchanges, it was decided that to reach out to the investors across India, SEs shall make use of the existing ISCs at the twelve locations and may open additional ISCs wherever required or as specified by the Board. The ISCs can be set up either by one stock exchange or jointly by multiple SEs. As prescribed by the Board, ISCs have to provide some basic minimum facilities to the investors.
Source : SEBI/HO/MRD/MRD-PoD-3/P/ CIR/ 2023/104 dated June 26, 2023
Disclosure of Information on Issuers Not Cooperating with CRAs
SEBI (Credit Rating Agencies) Regulations, 1999 requires every CRA to carry out periodic reviews of all published ratings during the lifetime of the securities, unlessthe rating iswithdrawn. Overtime, various issuers have become non-cooperative with CRAs, with a vast majority of INC issuers being small and unlisted entities.
In this regard, to provide enhanced transparency and information regarding non-cooperative issuers to various stakeholders it was prescribed that a CRA shall disclose two lists of issuers who are non-cooperative with the CRA, separately for securities that are listed, or proposed to be listed, on a recognized stock exchange, and other ratings in the prescribed format on a daily basis.
This is applicable from July 15, 2023 and CRAs shall report on their compliance with this circular (as ratified by their respective board of directors) to SEBI within one quarter from the date of applicability of this circular.
Source : SEBI/HO/DDHS/DDHS-POD2/P/ CIR/2023/ 105 dated June 27, 2023
Manner of Achieving Minimum Public Unitholding – REITs
Regulation14 (2A)of SEBI(RealEstate Investment Trusts) Regulations, 2014 mandates listed REIT with public unitholding below twenty-five per cent to increase its public unitholding to at least twentyfive per cent within a period of three years from the date of listing of units pursuant to initial offer. To facilitate REITs to achieve minimum public unit holding compliance as required under REIT Regulations, it was prescribed that manager of the REIT may adopt any of nine methods prescribed by SEBI.
It is the duty of stock exchanges to monitor the method(s) adopted by REITs to increase their public unitholding and comply with minimum public unit holding requirements. Noncompliance, if any, observed by the stock exchange with respect to the method and/or conditions prescribed, shall be reported to SEBI on a quarterly basis.
Source : SEBI/HO/DDHS/PoD2/P/CIR/ 2023/106 dated June 27, 2023
21.Manner of Achieving Minimum Public Unitholding – InvITs
Regulation 14 (1A) of SEBI (Infrastructure Investment Trusts) Regulations, 2014 mandates listed InvIT with public unitholding below twentyfive per cent to increase its public unitholding to at least twenty-five per cent within a period of three years from the date of listing of units pursuant to initial offer.
To facilitate InvITs to achieve minimum public unit holding compliance as required under InvIT Regulations, it was prescribed that manager of the InvIT may adopt any of nine methods prescribed by SEBI.
It is the duty of stock exchanges to monitor the method(s) adopted by InvITs to increase their public unitholding and comply with minimum public unit holding requirements. Non-compliance, if any, observed by the stock exchange with respect to the method and/or conditions prescribed, shall be reported to SEBI on a quarterly basis.
Source : SEBI/HO/DDHS/PoD2/P/CIR/2 023/107 dated June 27, 2023
Implementation of Circular on Upstreaming of Clients’ Funds by Stock Brokers / Clearing Members to Clearing Corporations Service Centres of Stock Exchanges SEBI,
vide a circular in June 2023 specified framework for upstreaming of clients’ funds by Stock brokers (SBs)/clearing members (CMs) to clearing corporations (CCs) according to which no clients’ funds shall be retained by SBs/ CMs on End of Day basis. The clients’ funds shall all be upstreamed by SB/ CMs to CCs only in the form of either cash, lien on FDR, or pledge of units of Mutual Fund Overnight Schemes (MFOS).
Based on representations received from various stakeholders, regarding difficulties in implementation of framework, including opening of bank accounts certain provisions of the circular were modified.
Source : SEBI/HO/MIRSD/MIRSD-PoD-1/P/ CIR/2023/110 dated June 30, 2023