Sebi eases norms for foreign portfolio investors

The Securities and Exchange Board of India (Sebi) has stormed capital markets like never before with an array of measures aimed at deepening them and checking the misuse.

The regulator on Friday offered direct entry to well-regulated foreign investors for investing in corporate bonds, and relaxed the norms for raising funds through infrastructure trusts and real estate investment trusts (Reits).

This means that foreign portfolio investors (FPIs) can trade directly in corporate bonds without needing any broker, while foreign fund managers can act as portfolio managers under a relaxed regulatory regime. This will make it easier for foreign fund managers keen to relocate to India. The move assumes significance in the wake of the government already having announced taxation incentives for the offshore fund managers willing to relocate to India.

This move was first recommended in August by the H R Khan Committee on development of corporate bond. The Reserve Bank of India (RBI) acted on most of the recommendations and has already allowed FPIs direct access to the government bond trading platform.

On September 12, dna reported Sebi's wide-ranging moves to deepen the capital markets and check the rot.

On Friday, Sebi unveiled several measures to check misuse of private equity agreements for grant of share price-based remuneration and proposed to ban the use of bulk SMSes, emails and emerging techniques like games, competitions and trading leagues for luring the gullible investors into fraudulent activities.

At the meeting held in Mumbai, Sebi's Board decided to float a consultation paper on corporate governance issues in compensation agreements, which would also entail detailed disclosures for such pacts.

Speaking to reporters after the meeting, Sebi chairman U K Sinha said the Board has approved a proposal for initiation of public consultation process on corporate governance issues in compensation agreements in case of listed companies.

The proposed changes include adding a new provision that would require disclosures and prior approval of shareholders by way of an ordinary resolution. In case of existing profit sharing agreements, such agreements would need to be informed to the stock exchanges for public dissemination.

Sebi has also allowed foreign investors to own up to 15% stake in domestic stock and commodity exchanges, a move that is expected to help attract more overseas funds. At present, foreign entities can hold only up to 5% stake in an exchange.

Experts point out that the move would help the two leading stock exchanges BSE and NSE in their proposed IPOs.

The Board also cleared a proposal to allow companies to allot more shares for their employees during public offers, by hiking the limit for the value of such allotments to Rs 5 lakh from Rs 2 lakh currently.

In another step aimed at improving ease of doing business, Sebi decided to provide permanent registration to merchant bankers, investment advisers, research analysts and eight other categories of market intermediaries.

The regulator already gives permanent registration to stock brokers and sub-brokers subject to their compliance with certain requirements.

In another move to make real estate investment trusts (REITs) and Infrastructure Investment Trusts (InvITs) more attractive for raising capital, Sebi has now decided to allow them to invest in two- level (special purpose vehicle) structure through holding company. It also removed the limit on the number of sponsors as three are required, at present.

Further, holding company would be allowed to distribute 100% cash flow realised from underlying SPVs and at least 90% of the remaining cash flow.

Regarding REITs, Sebi proposed to allow such trusts up to 20% investment by such trusts in under-construction projects, up from a maximum of 10% allowed, at present.

The move to increase the staff quota limit in IPOs to Rs 5 lakh will enable employees to apply for shares beyond the existing limit of Rs 2 lakh per employee. The move follows representations to Sebi to consider relaxing its regulations.

Chairman assuages concerns

Amid concerns among Sebi employees about CBI scrutiny in some high-profile cases including in MCX issue, chairman U K Sinha on Friday assured that the employees need not worry as their interest is safeguarded under the Act governing the regulatory body.

The Sebi Employees' Association (SEA) has reportedly expressed concerns over the recent CBI searches at three of its members' residences.

In a letter to the Sebi chairman, the body representing over 700 officials reportedly said these ''selective'' searches were "shocking and disturbing" as the matter was years old and involved decision-making at the highest level.