SEBI Current Affairs - 2019
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SEBI has released new buyback norms and a number of other market friendly measures.
Under the new rules:
- It is mandatory for companies selling shares to purchase at least 50% of the offer size. If they fail to do so, the amount in the escrow account will be forfeited, subject to a maximum of 2.5% of the total amount earmarked.
- Companies will have to create an escrow account towards security for performance equivalent to at least 25% of the amount earmarked for buyback.
- Companies are prohibited to come out with another buyback offer within one year from the date of closure of the preceding offer, and the promoters of the company are not allowed to execute any transaction, either on-market or off-market, during the buyback period.
- Maximum buyback period has been reduced to 6 months from current 12 months.
- Start-ups and SMEs (Small and Medium Enterprises) can be listed in Institutional Trading Platform (ITP) without making an Initial Public Offering (IPO). However, these companies in ITP will be able to raise capital only from investors such as Angel Investors, VCFs (Venture Capital Funds) and PEs (Private Equities). They will not be permitted to raise capital. However, they can continue to make private placements.
- Incorporating the recommendations of the K. M. Chandrasekhar Committee on ‘Rationalisation of investment routes and monitoring of foreign portfolio investments’ to simplify the norms for foreign institutional investors, SEBI has relaxed entry rules for offshore portfolio investors to attract more foreign capital into the country at a time of currency weakness and worries over a record high current account deficit.
- Foreign investors will now be permitted to trade in Indian stocks without any prior registration with SEBI.
Foreign Portfolio Investors: Different categories of investors like Foreign Institutional Investors (FIIs), sub-accounts (or an investment vehicle) and Qualified Foreign Investors (QFIs) have been clubbed under a new category called Foreign Portfolio Investor (or FPI).
In a bid to attract a larger number of foreign investors to Indian capital markets, SEBI approved a slew of changes. Among the major changes are simplification of registration and compliance requirements for foreign investors.
As per new measures:
- A new category Foreign Portfolio Investors (FPIs) has been approved; it blends various classes of investors such as FIIs, their Sub Accounts and Qualified Foreign Investors (QFIs) to set up a simplified and uniform set of entry norms for them.
- Recommendations of K M Chandrasekhar Committee on Rationalisation of Investment Routes and Monitoring of Foreign Portfolio Investments’.
- Any portfolio investments would be defined as investment by any single investor or investor group, which shall not exceed 10% of the equity of an Indian company. Investments beyond this threshold of 10% will be considered as FDI.
- With the aim to make the entry norms easier, SEBI has also approved eliminating the current practice of FIIs and their sub-accounts requiring a prior direct registration of the regulator to operate in Indian markets.
In addition, SEBI would adopt a risk-based KYC (Know Your Client) approach in dealing with the overseas investors. It includes FPIs to be divided into three categories which are:
- Low-risk (for multi-lateral agencies, government and other sovereign entities): This category will have simplest KYC requirements, not required to submit personal identification documents.
- Moderate risk (for banks, asset management companies, investment trusts, insurers, pension funds and university funds), not required to submit personal identification documents.
- High-risk (all the FPIs not included in the first two categories): This category FPIs would not be allowed to issue Participatory Notes and will have most stringent KYC requirements
Note: These measures have been introduced at a time when the rupee has depreciated considerably against the dollar reaching an all time low recently. Also, FIIs have been pulling out money from the Indian debt market, which has resulted in the hardening of yields on government bonds.