The capital markets regulator, the Securities and Exchange Board of India (Sebi), on September 28 came out with a series of significant guidelines.
Sebi gave its nod to set up a Gold Exchange, which is expected to create a vibrant gold ecosystem in India commensurate with the country’s large share of global gold consumption.
The capital markets regulator, the Securities and Exchange Board of India (Sebi), on September 28 came out with a series of significant guidelines.
Gold Exchange
Sebi gave its nod to set up a Gold Exchange, which is expected to create a vibrant gold ecosystem in India commensurate with the country’s large share of global gold consumption.
The Gold Exchange would be a national platform for buying and selling Electronic Gold Receipts (EGRs) with underlying standardized gold in India and will also create a national pricing structure for gold.
The Gold Exchange is expected to offer a host of benefits, including efficient and transparent price discovery, liquidity, assurance of the quality of gold and others, said Ajay Tyagi, chairman, Sebi, while addressing the media after a board meeting held in Mumbai.
EGRs will be notified as “securities” under the Securities Contracts (Regulation) Act, 1956. They will have trading, clearing and settlement feature just like other “securities”. Any recognized stock exchange can launch trading in EGRs in a separate segment. The denomination for the trading of EGRs and conversion of EGR into gold can be decided by the recognized stock exchanges, with the approval of Sebi.
The Clearing Corporation of India will settle the trades executed on the stock exchanges. The EGRs will have perpetual validity. On surrender, the EGR holder will be able to withdraw underlying gold from the vaults.
Vivek Iyer, partner and BFSI Expert, Grant Thornton Bharat, said, “Having gold exchanges formalises an unstructured gold market and brings in efficient price discovery and portfolio diversification benefits to a larger investor base.”
Silver ETFs
Sebi has allowed the introduction of silver ETFs in India. The Sebi board approved the amendment to Sebi (Mutual Funds) Regulations, 1996 to enable the introduction of Silver ETFs. These will be in line with the regulatory mechanism for gold ETFs.
Social Stock Exchanges
Sebi also approved the creation of the Social Stock Exchange (SSE) for fundraising by social enterprises. SSEs shall be separate segments of the existing stock exchanges. Social enterprises eligible to participate in SSE shall be non-profit organizations (NPOs) and for-profit social enterprises (FPEs) and will be required to engage in one or more of the 15 broad social activities approved by the board.
Eligible NPOs may raise funds through equity, zero coupon zero principal (ZCZP) bonds, mutual funds, social impact funds, and development impact bonds. Such NPOs will need to register with SSEs.
Social Venture Funds under SEBI (Alternative Investment Funds) Regulations will be rechristened as Social Impact Funds (SIFs), with a minimum corpus of Rs 5 crore.
Sebi will make suitable amendments to its regulatory framework, towards mandating initial and continuous disclosures for social enterprises, covering aspects relating to governance, financial and social impact. Social enterprises registered on SSE would be required to undergo an audit of their social impact. The audit needs to be done by reputed firms/institutions having expertise in the area of social audit and by auditors who have cleared the National Institute of Securities Market’s (NISM) certification course.
“The approval for creation of a social stock exchange is a significant step in the right direction to facilitate fundraising for NGOs in India especially with the increasing importance of ESG globally and in India,” said Iyer.
Investor Charter
Sebi also approved an Investor Charter for the securities market. It has also developed Investor Charters for recognized Market Infrastructure Institutions (MIIs), registered intermediaries and regulated entities.
The Investor Charter, among other things, includes the vision statement of Sebi for investors, including their rights and responsibilities, and has also listed some do’s and don’ts.
Through the charter for institutions, investors will have a single window to get all relevant information such as their rights, the services they can avail of, the timelines and even a grievance redressal mechanism.
The charters will be displayed on Sebi’s website and on the websites of the respective intermediaries or entities.
Merger and acquisitions
The Sebi Board approved the proposal to amend the existing regulatory framework for delisting of equity shares according to an open offer, as provided under the extant Regulation 5A of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Regulations).
Under the existing framework, if an open offer is triggered, compliance with Takeover Regulations could take the incoming acquirer’s holding to above 75%. To ensure compliance with the Securities Contract (Regulation) Rules, 1957 (SCRR), the acquirer would be forced to bring the stake down to 75% as the SEBI (Delisting of Equity Shares) Regulations, 2021 (Delisting Regulations) would not allow the acquirer to delist until the holding is brought down to 75%. Such directionally contradictory transactions in a sequence pose complexity in the takeover of listed companies, especially where the acquirer desires to get the company delisted under the takeover.
The revised framework aims to make M&A transactions for listed companies a more rational and convenient exercise, balancing the interest of all investors in the process.
“Amendments to delisting reinforce the increased commitment to the theme of ease of doing business in India,” said Iyer.
Superior voting rights
Sebi also decided to relax the eligibility requirements related to the Superior Voting Rights (SR) Shares framework.
Earlier, in 2019, Sebi had introduced superior voting rights (SR) framework specifically for issuer companies that use technology intensively. The framework allowed the issuance of SR shares to promoters and founders holding executive positions in the company. The framework also has checks and balances such as coattail provisions, that is, matters in which SR shares shall have the same rights as that of ordinary shares, and sunset clause, giving the time period until which, such an SR shareholder shall enjoy superior voting rights.
As per the existing provisions, an SR shareholder should not be part of a promoter group having a net worth of more than Rs 500 crores. Now the SR shareholder, as an individual, should not have a net worth of more than Rs 1,000 crore.
The minimum gap between the issuance of SR shares and filing of the red-herring prospectus has been reduced to three months from the existing requirement of six months.
Alternative investment funds regulation
Sebi also gave its nod to the amendment to Sebi (Alternative Investment Funds, AIFs) Regulations, 2012 allowing Category III AIFs to calculate concentration norms based on their net asset value (NAV) of the fund instead of investable funds for investment in listed equities of investee companies.
Amendments to the Sebi (Portfolio Managers) Regulations were also approved in Tuesday’s Sebi board meeting to facilitate co-investment by investors of AIFs through the portfolio management route. The portfolio manager providing co-investment services to investors of AIFs shall invest 100% of the assets under their management in unlisted securities and shall be exempted from certain requirements under SEBI (Portfolio Managers) Regulations, 2020, including minimum investment amount, and minimum net worth.
To facilitate investment in Indian securities markets through foreign portfolio investor (FPI) route by AIFs set up in International Financial Services Centres (IFSCs), Sebi considered and approved the proposal to amend the Sebi (Foreign Portfolio Investors) Regulations, 2019 for permitting resident Indians (other than individuals) to become constituents of FPIs that are registered as AIFs in IFSCs. Such resident Indians shall be sponsors or managers of the FPI and their contribution in the FPI shall be subject to conditions as specified by the board.