Hedge fund, private equity rules soon

The Securities and Exchange Board of India (SEBI) hopes to finalise regulations for alternative investments in the next two months, UK Sinha, chairman of the capital market regulator, said on Tuesday.

SEBI had put up a concept paper for regulation of alternative investment funds, or AIFs, on its website in August.

AIFs have been classified into nine categories, including a category for private equity funds.

Any fund operating as a hedge fund shall be required to be registered as ‘strategy fund’ under the AIF regulations.

The minimum size of the AIF shall be Rs20 crore, with a minimum investment of Rs1 crore, or 0.1%, of the fund size, whichever is higher, according to the concept paper.

Speaking at the Capital Market Summit organised by the Confederation of Indian Industry, Sinha also highlighted SEBI’s discomfort with the compliance standards of many listed companies. He said the market regulator’s surveillance systems had been picking up a lot of alerts on possible violations and warned companies to get their risk management processes in place before SEBI took action.

He also said that a lot of grievances involving intermediaries and their clients were being decided in favour of the former.

It may be worthwhile to examine why this was happening and also whether this was because of a communication gap regarding the use of a grievance settlement mechanism, he said.

SEBI is also considering reducing the time taken for approval of the offer documents companies file when they wish to raise money from the public through an initial public offer (IPO). After the initial documents are filed, the regulator is often left waiting on its follow-up queries, leading to a delay in approvals.

This could be because companies have slowed down their plans as the market conditions change. The regulator plans to put a timeline to such replies to streamline the process.
Sebi is also working on overhauling the IPO process and a group is already working on the same, said Sinha.

He drew attention to the fact that Sebi is the first regulator to appoint an external consultant to review its organisational process.
With reference to high frequency trading, where computers trade on the basis of various algorithms in micro-seconds, he said he is worried about risk management. An error from an algorithm necessitated the cancellation of an entire session’s derivatives trade on the BSE. The session was conducted as part of ‘Muhurat’ trading during Diwali.

He also pitched for pension fund money in equity markets.