The Indian securities market regulator – Securities and Exchange Board of India (SEBI), in its much awaited 206^th board meeting held on June 27, 2024 (Board Meeting), has approved several key changes to various SEBI regulations (which can be viewed by clicking on this link). The specific proposals approved by SEBI vide the Board Meeting are inter alia as follows:

 

Measures in relation to Association with Unregistered Persons Providing Investment Advice / Recommendations

 

In order to address the concerns related to certain persons including unregulated entities inducing investors to deal in securities based on inappropriate claims, SEBI has approved a proposal prohibiting persons regulated by it to have any association, directly or indirectly, with any person who, directly or indirectly, provides advice or recommendation or makes any implicit or explicit claim of return or performance, in respect of or related to security or securities, unless permitted by SEBI to provide such advice/recommendation/claim. The ‘association’ as used above refers to any transaction involving money or money’s worth, referral of a client, interaction of information technology systems or any other association of similar nature or character.

 

SEBI has clarified that this prohibition will not apply with respect to any persons who are exclusively engaged in investor education, or the association is through a specified digital platform, which has a mechanism in place to take preventive as well as curative action, to the satisfaction of SEBI, to ensure that such a platform is not used by any person for providing advice/ recommendation /claim of return or performance (unless permitted by SEBI).

 

Flexibility in Voluntary Delisting: Amendment to SEBI (Delisting of Equity Shares) Regulations, 2021

 

SEBI has approved a fixed price process for voluntary delisting of companies whose shares are frequently traded, as an alternative to the reverse book building process (RBB Process) under the SEBI (Delisting of Equity Shares) Regulations, 2021 (Delisting Regulations). The fixed price offered by the acquired under this process would need to be with at least a 15% premium over the floor price determined under the Delisting Regulations.

 

SEBI has approved amendments to the counter-offer mechanism under the RBB Process, where the threshold to make a counter-offer has been reduced from 90% to 75%, subject to at least 50% of the public shareholding being tendered. SEBI has also approved the introduction of Adjusted Book Value as an additional parameter for determining floor price under the Delisting Regulations and modification of the reference date for computing floor price from the existing requirement of approval of the board to the date of initial public announcement for voluntary delisting.

 

In addition, SEBI has introduced a new framework for delisting of listed Investment Holding Companies (IHCs) by way of a scheme of selective capital reduction. Under the new framework, a listed IHC, that has at least 75% of their fair value (net of liabilities) comprising direct investments in shares of other listed companies, will be permitted to transfer the underlying listed shares to its public shareholders on a pro-rata basis. The listed IHC will also be permitted to make proportionate cash payments to its public shareholders against other assets including investments in land, building, unlisted companies etc. The IHC shall be delisted when the entire public shareholding is extinguished pursuant to the above process.

 

Certain Category-I FPIs to be exempted from meeting additional disclosure norms

 

SEBI approved exemption of university funds and university-linked endowments registered and/or eligible for registration as Category-I FPIs from the fulfilment of disclosure requirements regarding disclosure of its beneficial owners provided it complies with the following conditions:

 

• Assets under management by such FPI in India are less than 25% (twenty-five percent) of its global assets under management;

 

• Assets under management held globally by FPI should at least be INR 10,000 crores (Rupees Ten Thousand Crores); and

 

• Appropriate tax returns have been filed in its home jurisdiction evidencing that the entity is in the nature of a non-profit organization entitled to tax exemptions.

 

Amendments to SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021

 

In order to facilitate ease of doing business, SEBI has approved several amendments to the public issue process for debt securities and non-convertible redeemable preference shares (NCRPS) such as inter alia – (a) reduction in the period for seeking public comments on the draft offer documents from 7 working days to 1 day for issuers whose specified securities are already listed and 5 days for other issuers; (b) reduction in the minimum subscription period to 2 working days from 3 working days; (c) reduction in the listing timeline to T+3 working days from T+6 working days on optional basis for 1 year and on mandatory basis thereafter; (d) alignment of disclosures regarding utilisation of issue proceeds with the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations); (e) clarification that time period for key operational and financial parameters will be disclosed in line with the requirement for financial information; and (f) deletion of disclosure regarding Permanent Account Number (PAN) and personal address of promoters.

 

Measures to facilitate Ease of Doing Business for Infrastructure Investment Trusts and Real Estate Investment Trusts

Prior to SEBI’s approval at the board meeting, SEBI issued a consultation paper dated May 9, 2024 to foster ease of doing business. While amendments to the principal regulations governing both REITs and InvITs are still awaited, the following matters have received specific approval from SEBI at its board meeting:

 

• The manager of the REIT / InvIT may convene a meeting of its unitholders at shorter notice (i.e. less than notice of 21 (twenty-one) days as required by regulations) subject to receipt of approval from its unitholders.

 

• A statement of investor complaints shall be placed before the board of directors of the manager of the InvIT / REIT (as the case may be) and the relevant trustee on a quarterly basis.

 

• The timeline for disclosure of statement of deviation(s) or variation(s) in the use of investment proceeds from the stated objectives to the stock exchanges will be aligned with the submission of financial results.

 

• Unitholders will be provided with an option for e-voting and to attend meetings in electronic mode (additional clarifications on voting thresholds are expected).

 

• Maintenance of records in electronic form permitted for REIT’s operations. SEBI is expected to formulate backup and disaster recovery norms for records to be maintained by manager of InvIT/ REIT (as the case may be).

 

• Reduction of trading lot for privately placed InvITs from INR 1,00,00,000 (Rupees One Crore) to INR 25,00,000 (Rupees Twenty-Five Lakhs).

 

• Provisions related to change in sponsor to be aligned in respect of REITs and InvITs. Following this alignment, change in sponsor or inducted sponsor in the case of an InvIT could occur on account of either the entry of a new sponsor or the exit of existing sponsors.

 

• The timeline for payment of distributions shall be revised to 5 (five) working days from the record date. The record date shall be the date which is 2 (two) working days from the date of declaration of distribution, excluding the date of declaration and the record date.

 

Guidelines for Borrowing by Category I and II AIFs and Specifying of Maximum Permissible Limit for Extension of Tenure by Large Value Funds

 

• SEBI allows Category-I and II AIFs to borrow funds for up to 30 (thirty) days for the purpose of meeting temporary shortfall in drawdown from investors, while making investments.

 

• Further, all costs of such borrowings can be charged to investor accounts responsible for the shortfall which had arisen during drawdown. In order to avoid the possibility of borrowing roll-overs, a 30 (thirty) day cooling period between two borrowings availed by Category-I and II AIFs has been approved.

 

• Maximum permissible limit for the extension of tenure of schemes issued by LVFs fixed at 5 (five) years, subject to the LVF receiving approval from 2/3rds (two-thirds) of its unit holders (by value of their investment). Following completion of such extended tenure, an LVF can opt to enter into a dissolution period in a manner similar to AIFs for its unliquidated investments.

 

• All existing LVFs which have longer extension periods or no cap on extension period, in each case, as set forth in their respective private placement memorandums have been granted a period of 3 (three) months within which they would need to comply with the aforesaid requirements.

 

Cybersecurity and Cyber Resilience Framework (CSCRF) for SEBI Regulated Entities (REs)

 

SEBI approved the CSCRF for SEBI REs, which is a standard-based framework and broadly covers the five cyber resiliency goals, viz. Anticipate, Withstand, Contain, Recover, and Evolve which are adopted from CERT-In Cyber Crisis Management Plan (CCMP), for countering Cyber Attacks and Cyber Terrorism. The CSCRF framework provides a structured methodology to implement various solutions for cybersecurity and cyber resiliency and will assist REs in strengthening their security posture.

 

In order to facilitate ease of compliance, REs have been provided with the following glide path to adopt the new standards and controls prescribed in the CSCRF: (a) 6 categories of entities where cybersecurity and cyber resilience circular already exists – January 01, 2025; and (b) all other entities where CSCRF is made applicable for the first time – April 01, 2025.

Eligibility Criteria for Entry/Exit of Stocks in Derivatives Segment

 

SEBI has approved a revision in eligibility criteria for entry and exit of stocks in the derivatives segment of exchanges based on their performance in the underlying cash market, which shall be as follows:

 

S. No.	Evaluation Metric	Revised Criteria
1.	Average Daily Market Capitalization and Average Daily Traded value (ADTV) in the previous six months on a rolling basis	Amongst top 500 stocks
2.	The stock’s Median Quarter Sigma Order Size (MQSOS) over the last six months, on a rolling basis, shall not be less than:	INR 7.5 million
3.	The stock’s market wide position limit (MWPL) on a rolling basis shall not be less than	INR 15 billion
4.	The stock’s Average daily delivery value (ADDV) in the cash market, in the previous six months on a rolling basis, shall not be less than	INR 350 million

 

Further, to valuate exit of stocks from the derivate segment, the following conditions have been down under the Product Success Framework (PSF): (i) at least 15% of trading members active in all stock derivatives (trading member who has traded during the month) or 200 trading members, whichever is lower, shall have traded in any derivative contract on the stock being reviewed on an average on monthly basis during the review period; (b) trading on a minimum of 75% of the trading days during the review period in derivatives segment; (c) average daily turnover (futures + options premium) of at least INR 750 million during the review period; and (d) average daily notional open interest (futures + options notional) of at least INR 5 billion of that particular stock during the review period. SEBI has clarified that the PSF conditions would start to apply 6 months from the date of issuance of the circular. The criteria for exit shall apply to only those stocks which have completed at least 6 months from the month of entry into the derivative segment. Also, for existing stocks in the derivatives segment, the exit criteria on the basis of performance would be applicable 3 months after the date of issuance of the circular.

 

Please note that the actual regulatory amendments/circulars pursuant to the proposals approved in the Board Meeting shall be issued by SEBI separately, at a later date.