Indias capital market regulator SEBIs (Securities and Bxchange Board of India) board announced several reforms in a meeting on Wednesday. Some of these reforms include easing norms to kick-start start-up listings, and allowing mutual funds to segregate distressed assets to safeguard investment returns.
The regulators board approved the proposal that clubbing of investment limit for FPIs will be on the basis of common ownership of more than 50% or common control. However, in the case of appropriately regulated public retail funds, investment limits will not be clubbed on the basis of common control, SEBI said in a statement.
“The proposal that clubbing of investment limit for FPIs will be on the basis of common ownership of more than 50 per cent or common control was approved,” the regulator said further.
The board took a call that clubbing of investment limit should not be done on the basis of same set of beneficial owners as per the Prevention of Money Laundering Act (PMLA).
Mutual funds can separate bad assets
In its meeting, SEBI decided to allow mutual funds to create segregated portfolios of debt and money market instruments, subject to various safeguards. Such a facility will be available to mutual funds based on credit events. Creating segregated portfolio may be optional for mutual funds, but approval of trustees is necessary for activating such a portfolio, SEBI said in its statement.
Termed as side-pocketing in mutual fund (MF) parlance, this refers to a practice where fund houses isolate risky assets from the rest of their holdings and cap redemption.
It will help MFs (mutual funds) deal with the problem of defaults and help schemes function better, especially when one paper defaults, a fixed-income head of a mid-sized mutual fund house told Reuters on the condition of anonymity. It also gives clarity to investors who are at a loss during event such as IL&FS, and will boost their confidence in debt funds.
Start-up listing platform
In a move aimed at start-ups, the board also gave its approval to rename the Institutional Trading Platform as the Innovators Growth Platform (IGP).
For a firm to list, it should be engaged in intensive use of new-age technologies. The IGP has been designated as a platform where start-ups have an option to trade under regular category after completion of one year of listing, subject to compliance with exchange requirements.
SEBI to allow custodians to participate in commodity markets
SEBI, on Wednesday, said it would allow custodians to participate in commodity markets. However, market players opined that the concept of a custodian will pick up only when settlement in commodity markets is made delivery-based instead of currently operational cash-based.
Custodian is a financial institution that holds the securities of investors/traders in electronic or physical form for safekeeping with a view to minimise the risk of theft or loss. However, since commodity markets follow cash-based settlement, there is no give and take of delivery of any goods. This negates the need for a custodian, experts said.
OFS framework expanded
The regulatory board also approved modifications to the existing offer-for-sale (OFS) mechanisms to expand the universe of firms to whom the facility is available. SEBI also sought to bring more clarity in the conditions for cancellation of an offer.
Now, the offer mechanism will be available for shareholders of those companies that have market capitalisation of Rs 1,000 crore and above. The threshold of market capitalisation will be calculated as the average of daily reading for six months prior to the month in which the offer opens.
Elton Gomes is a staff writer at Qrius