Fri. Sep 22nd, 2023

Regulation HK

Financial Regulator

SEBI Board Meeting: A Preview of Things to Come

3 min read

SEBI has relaxed its minimum public offer requirements just days after revealing a number of new initiatives in its annual report.

SEBI (Securities and Exchange Board of India) at its board meeting on Wednesday (17 February) approved a relaxation in its minimum public offer requirements, paving the way for large issuers to more easily issue IPOs.

Under current rules, companies seeking to IPO with post issue market capital of at least INR 40 billion or more are required to offer at least 10 percent of the post issue market capital to the public, and achieve a minimum public shareholding of 25 percent within three years of listing.

The relaxation will allow large companies (those with post issue market capital exceeding INR 10 trillion) to reduce the public offer size from 10 percent of post issue market capital to INR 100 billion plus 5 percent of any incremental amount issued beyond INR 100 billion. Such companies have to achieve at least 10 percent of public shareholding within two years and 25 percent within five years.

Local reports indicate the move will help the government divest part of its stake in state-run Life Insurance Corporation, which is expected to launch an IPO in the next financial year. A 10 percent stake of the insurer, worth an estimated INR 1 trillion, would have likely been difficult for the market to absorb.

SEBI also approved regulations to allow merchant bankers and stockbrokers to carry out underwriting activities, subject to fulfilling a net worth requirement.

Following SEBI’s board meeting, which Finance Minister Nirmala Sitharaman stressed the need for timely implementation of the Budget announcements relating to capital markets.

Sitharaman proposed in her Budget announcement earlier this month that SEBI frame a single securities markets code through the consolidation of four laws — the SEBI Act 1992, Depositories Act 1996, Securities contracts (Regulation) Act 1956 and government securities Act 2007.

The Budget also include measures to develop the corporate bond market through the creation of a permanent institutional framework for the establishment of a new body to purchase investment grade debt securities in the secondary market.

Separately, SEBI recently announced in its annual report that it is considering introducing a framework to allow investors to be compensated for losses incurred due to technical glitches at exchanges, brokers, depositories and other market infrastructure intermediaries.

The regulator also plans to evaluate the use of smart contracts in the securities market. “Smart contracts digitalise trust in a way that makes transactions robust, safe and enforceable anywhere. Smart contracts have the power to make the stock market faster and cheaper and streamline post-trade settlement,” the annual report said.

SEBI also plans to introduce a compliance code for index providers, to study the feasibility of introducing derivatives contracts on freights, and to explore a proposal to prevent commodities market liquidity from being fragmented by allowing only unique sets of commodities to be traded at each exchange.

SEBI will also focus on training its officers on big data and data analytics to build its capacity for using these technologies in internal decision-making, policy making and surveillance. A new project has been initiated to develop new models for establishing linkages between various entities and identify market malpractice.

A cybersecurity fusion centre is also being established, as part of a three-tier structure that will help SEBI detect cyber threats faster and resolve such incidents more efficiently and effectively.

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