OPENING UP: Regulator relaxes clubbing of investment limit norms, eases norms for startups, expands OFS mechanism
In a slew of reforms, the Securities and Exchange Board of India (Sebi) on Wednesday allowed mutual funds to separate their holdings in risky assets, in the light of the liquidity crisis trigerred by the Infrastructure Leasing & Financial Services (IL&FS) collapse. It also approved a proposal of clubbing investment limit for foreign portfolio investors (FPIs) on the basis of common ownership of more than 50% or common control. In its Board Meeting, the market regulator has approved mutual funds to create segregated portfolios with respect to debt and money market instruments subject to various safeguards. This facility will be available to mutual funds based on credit events.
Sebi chairman Ajay Tyagi said "This provision has been triggered by the crisis at non-banking finance company (NBFCs)."
According to him, it is in the interest of retail investors that the toxic assets are segregated from the assets which are doing well.
"We think it is an appropriate time to introduce this provision," he said, adding enough steps will be taken and safeguards will be put by the regulator to ensure that this facility is not misused.
"The final guidelines will contain these safeguards," Tyagi said.
Referred as side-pocketing in mutual fund parlance, this will allow fund houses to isolate risky assets from the rest of their holdings.
The regulator also said the Board also approved a proposal that clubbing of investment limit for FPIs should not be done on the basis of a same set of beneficial owners as per the Prevention of Money Laundering Act.
"However, in the case of appropriately regulated public retail funds, investment limits will not be clubbed on the basis of common control," Sebi said.
At present, the FPIs are considered as part of the same investor group and the investment limits of all such entities are clubbed for deriving the investment limit as applicable to a single FPI, in case of the same set of ultimate beneficial owners investing through multiple entities.
The regulator has also decided to bring in a consultation paper on having uniformity in the valuation process of corporate bonds. The regulator will look into the issue of valuing distressed assets and other debt exposures of mutual fund schemes.
It also revised the offer for sale mechanism which will now be available to shareholders of companies with market capitalisation of Rs 1,000 crore and above. At present, only top 200 companies by market cap are allowed to opt for OFS.
In a major push to listing of start-ups, Sebi relaxed norms for new-age ventures in sectors like e-commerce, data analytics and biotechnology to raise funds and get their shares traded on stock exchanges.
Among the measures include renaming the 'Institutional Trading Platform' that the regulator had created for such listings as 'Innovators Growth Platform'.
NEW REFORMS
- Sebi allows custodial services in the commodity derivatives market to enable institutional participation
- To prescribe principles strengthening the existing system of valuation of corporate bonds by MFs
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