4 min readMumbaiMay 1, 2024 04:00 AM IST
The board of the Securities and Exchange Board of India (Sebi) on Tuesday decided to amend norms governing mutual funds mandating asset management companies (AMCs) to put in place an “institutional mechanism” for identification and deterrence of potential market abuse, including front-running and fraudulent transactions in securities. The board also decided to slash the face value of non-convertible debentures through private placement to Rs 10,000.
The AMC mechanism should consist of enhanced surveillance systems, internal control procedures, and escalation processes to identify, monitor and address specific types of misconduct, including front running, insider trading, and misuse of sensitive information, Sebi said in a statement after the board meeting. Further, with respect to the requirement of recording of all communication by dealers and fund managers, the board approved exemption from the requirement of recording face to face communication, including out of office interactions, during market hours. This will be made effective after implementation of the institutional mechanism by AMCs, the market regulator said.
To enhance participation of non-institutional investors in the bond market while safeguarding the interest of such investors, the board approved the proposal to provide an option to the issuers to issue NCDs or NCRPS through private placement mode at a reduced face value of Rs 10,000 along with the requirement to appoint a merchant banker. This move is expected to draw more investors to the bond market, said a merchant banker. Further, in order to reduce the size of the offer document, the board approved the proposal that issuers which have listed outstanding non-convertible securities as on the date of the offer document may be allowed to disclose audited financials for the last three years through insertion of a web-link and QR code in the offer document or the placement memorandum. In another decision, the Sebi Board approved a regulatory framework for providing flexibility for increased contribution by NRIs, OCIs and RI individuals, in the corpus of certain FPIs based out of IFSCs in India and regulated by IFSCA.
The flexibility for such increased participation will be subject to certain conditions to manage regulatory risk. “100 per cent contribution limits should be available subject to the FPI submitting copies of PAN cards of all their NRI/OCI/RI individual constituents, along with their economic interest in the FPI, to the DDP,” it said.
If a constituent does not have a PAN, the FPI should submit a suitable declaration along with copies of prescribed Identity documents such as Indian passport, OCI Card, Aadhaar, etc. Similar disclosure shall also be required in case of indirect holding in the FPI through non-individual constituents that are majority contributed to/owned/controlled by NRI/OCI/RI individuals on a look through basis.
In a bid to streamline and create a level playing field for all AMCs, the board approved amendment to SEBI (Mutual Funds) Regulations, 1996 to allow equity passive schemes, on indices to be specified by SEBI, to take exposure up to the weightage of the constituents in the underlying index. This exposure would, however, be subject to an overall cap of 35 per cent investment in the group companies of sponsor.
With a view to address the issues faced by venture capital funds (VCFs) registered under the erstwhile VCF Regulations with respect to their inability to fully liquidate the investments of their schemes within the tenure of the scheme, the Sebi Board has approved a proposal to provide an option to such VCFs to migrate into AIF Regulations and avail the facilities available for AIFs to deal with unliquidated investments.
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