Sebi Takes a Leap Forward: Easing Disclosure Norms for FPIs and Approving T+0 Settlement
The Securities and Exchange Board of India (SEBI) has recently sanctioned a range of transformative proposals to facilitate efficient fiscal operations for companies intending to go public. As a leading regulatory authority, their strategies include simplifying disclosure requirements for certain Foreign Portfolio Investors (FPIs) and launching the T+0 settlement’s beta version.
Easing the Way for Foreign Portfolio Investors
Upon their annual board meeting, SEBI unveiled an initiative to alleviate supplementary disclosure requirements. This exemption targets FPIs bearing over 50% of their Indian equity Assets Under Management (AUM) within a solo corporate group.
The Specifics
To qualify for this exemption, these FPIs must hold concentrated holdings in a publicly listed company that lacks an identified promoter. Furthermore, these FPIs must maintain no more than 50% of their Indian equity AUM within the corporate group post-excluding their holdings in the promoter-less parent firm. The board floated this recommendation for consultation back in August 2023, now finalized into action.
T+0 Settlement
Contextualizing the Move
A testament to this step’s necessitation dates back to the 2023 Adani-Hindenburg case. Difficulty in pinpointing beneficial ownership of some FPI resources invested in Adani shares highlighted a current regulation’s lax nature in identifying legitimate investment owners. SEBI’s latest measure is an effort to rectify such anomalies.
Diversification: The Key to Exemption
Not all FPIs are eligible for this disclosure exemption. The beneficiaries of this relaxed rule are those with diversified global holdings— sovereign wealth funds (SWFs), globally listed companies, public retail funds, and a range of other governed pooled investment entities.
SEBI and the T+0 Settlement
In alignment with their Monday declaration, SEBI launched the beta version of the T+0 settlement cycle, set to launch on March 28. The T+0 settlement signifies an expedited financial transaction process— funds and securities traded would settle on the same day.
What’s Next?
SEBI aims to consistently engage in discussions with the beta version users, mapping out forthcoming actions within a timespan of 3 to 8 months. This ongoing commitment signals seamless transitions and adjustments in this novel financial operation.
New Disclosure Timelines for FPIs
Under the revamped regulatory framework, FPIs fall into two categories— Type I and Type II— depending on pertinent disclosure timelines.
Timeline for Type I
FPIs must report Type I material alterations to their Designated Depository Participants (DDP) within seven working days of the change’s occurrence. To aid in streamlining operations, supporting documentation for Type I adaptations now necessitates submission within 30 days of the change.
Timeline for Type II
For Type II material changes, FPIs ought to disseminate the information alongside necessary documents to their DDP within 30 days of the change.
Supporting Business through Policy
As part of their mission to boost ease of doing business, SEBI permits reactivation of delinquent FPI registrations—expired due to fee non-payment—within 30 days from the expiry date.
During the Adjustment Period
SEBI permits such FPIs to manage their securities holdings during this 30-day constraint. For the FPIs opting not to reactivate registration, SEBI grants a 180-day window for securities disposal. This flexibility fosters ease of doing business, improving the operational landscape.
Abolishing the 1% Security Deposit Rule: A Positive Shift
On the ease of doing business front, SEBI also abolished the mandatory 1% security deposit rule, acting on an expert committee’s recommendations. The removal of the long-observed 1% security deposit in public/rights issues evidently stimulates more companies to tap into primary markets for fund-raising, subsequently aiding in capital formation.
Promoters’ Contributing Without Being Identified
Entities from the promoter group and non-individual stakeholders possessing over 5% of the post-offer equity share capital can now contribute to the Minimum Promoters’ Contribution (MPC) without a promoter tag.
Tackling Rumours: Protecting Market Integrity
For rumour verification, publicly listed companies must articulate a uniformly assessed, objective criteria for verifying rumors concerning significant price fluctuation of equity shares. In turn, promoters, directors, and key managerial personnel must ensure timely verification of rumors influencing their scrips.
Doing Away with Mandatory Security Deposit: Further Facilitating Business
Basing its decisions on an expert committee’s recommendations, SEBI has decided to do away with the mandatory practice of a 1% security deposit in public/rights issues. This is a longstanding practice, and removal of such stringent requirements is expected to encourage a greater number of companies to access primary markets for their fundraising endeavors, eventually aiding in capital formation.
SEBI’s ICDR (Issue of Capital and Disclosure Requirements) Regulations
The move aligns with SEBI’s ICDR Regulations and seeks to improve the ease of doing business in the Indian market. It reduces the burden on companies and streamlines the process of raising funds.
Making Room for Larger Contributions
SEBI has also opened new avenues for promoter group entities and non-individual shareholders. Such stakeholders, holding more than 5% of the post-offer equity share capital, can now contribute towards the Minimum Promoters’ Contribution (MPC) without carrying the promoter label. This change not only allows more capital to flow into the companies but also strengthens their financial base.
Ensuring Market Transparecy: Tackling Rumors and Misinformation
In an era where misinformation can cause significant stock market fluctuations, SEBI has implemented a new rule regarding rumor verification. Public listed entities are now obliged to define a uniformly assessed, objective criteria for verifying rumors that might cause significant price movements of equity shares.
The Responsibility of Key Management Personnel
Along with establishing a criterion for rumor verification, the responsibility to provide timely verification of such rumors rests with the promoters, directors, and key managerial personnel of the companies. This step mandates these responsible figures to tackle miscommunication, ensuring the integrity of the shares and protecting investors’ interests.
By implementing measures that lessen opaque areas and increase transparency, SEBI has taken definite steps towards making India’s financial markets more investor-friendly, dependable, and easy to navigate. These landmark measures align with SEBI’s mission to improve market efficiency.
Enhancing Market Integrity and Investor Confidence
SEBI’s strategic reforms, encompassing eased disclosure norms for FPIs, the abolishment of the 1% security deposit requirement, and the emphasis on rumor verification mechanisms, represent a significant leap towards enhancing market integrity. By streamlining these processes and reducing bureaucratic hurdles, SEBI not only aims to attract more foreign investments but also to ensure that the Indian stock market remains a robust and vibrant ecosystem for capital generation.
Fostering a Pro-Business Environment
The targeted easing of disclosure norms for certain categories of FPIs underscores SEBI’s commitment to fostering a pro-business environment. By reducing the regulatory burden on sovereign wealth funds and other regulated entities, SEBI signals its recognition of the importance of global capital in India’s growth story. This approach encourages a diversified and stable investor base, vital for the market’s long-term health.
The Importance of the T+0 Settlement
The beta launch of the T+0 settlement cycle marks a transformative shift towards real-time trading and settlement, poised to increase market liquidity and enable faster transaction times. This development is expected to enhance India’s attractiveness as a financial market, closely aligning it with global best practices. The success of this initiative could set a new standard for markets worldwide, showcasing SEBI’s forward-thinking approach.
Streamlining FPI Registrations and Contributions
The new regulations around FPI registrations and contributions are designed to smoothen the operational aspects of entering and participating in the Indian markets. Allowing FPIs to rectify their registration status post-expiry and enabling more significant contributions without the promoter label reduces friction and encourages participation from foreign investors and corporate stakeholders.
Battling Misinformation in the Market
SEBI’s initiative to establish a structured process for rumor verification is a forward step in battling misinformation in the stock market. By placing the onus of rumor verification on the promoters, directors, and key managerial personnel, SEBI ensures that companies take active steps in maintaining transparency with their investors and stakeholders, thus safeguarding the market against unwarranted price fluctuations caused by rumors or speculations.
Conclusion: SEBI’s Progressive Stance
In conclusion, SEBI’s recent decisions are indicative of its progressive stance towards regulatory norms governing the financial markets. These measures, ranging from simplifying disclosure requirements for foreign investors to streamlining processes for companies going public, are pivotal in ensuring the Indian market’s competitiveness on a global stage. Additionally, by tackling issues like rumor control head-on, SEBI enhances investor confidence and market integrity.
The regulatory authority’s approach reflects a deep understanding of the challenges and opportunities within India’s financial landscape and a commitment to leveraging both in favor of a more inclusive, transparent, and efficient market. As these changes are rolled out and adopted, stakeholders across the spectrum – from international investors to Indian companies and the investing public – stand to benefit, marking a new chapter in India’s economic growth story and its standing within the global financial community.
