SEBI & Share Market

The revised exposure margin requirement would be effective from July 15. The exposure margin requirement was similar prior October 2008, after which Sebi increased the exposure margin requirement to higher of 10 per cent, or 1.5 times the standard deviation, to promote market safety and safeguard investor interest.

The Securities and Exchange Board of India (Sebi) wants to further tighten rules related to voting rights of holders of depository receipts (DRs), especially in cases these rights rest with the board of directors of the company.

It is believed that Sebi is not comfortable with the practice and will take up the issue with the Reserve Bank of India (RBI) and the Ministry of Finance. The issue was discussed at Sebi's board meeting last week.

Sebi says there are cases where voting rights rest with the board of directors and not DR holders. This is done by structuring the contract in a way that voting rights of DR holders are curtailed.

"It is for consideration whether, as a matter of good governance, it is advisable to restrict issuers from including as `terms of issue' clauses that curtail voting rights of DR holders and which empower the management to exercise voting rights on DRs," says the Sebi board's agenda paper available on its website.

"The provisions related to issue of ADRs/GDRs and matters incidental thereto are within the administrative control of the Ministry of Finance/RBI. Therefore, any such requirement may need to be implemented through appropriate policy instructions by the government," it adds.

source: business-standard Sebi wants to tighten norms on DRs voting rights

The market regulator has been undertaking a series of measures to make financial markets more transparent and investor friendly. It has earlier reduced entry load and done away with distributor commissions for mutual fund schemes.

The logic behind Sebi's plan to bar mutual funds from selling equity options could be that the market regulator feels some fund houses are taking `excessive exposure' to options, a person familiar with the development told ET.

In a circular sent only to mutual funds late-March, the market regulator sought feedback from asset management companies (AMCs) on proposals such as barring them from selling equity options, reducing their exposure to equity derivatives and disclosing more about their bets in this segment, said people familiar with the development.

The proposal, along with the feedback of the mutual fund industry, is likely to be reviewed at a Mutual Fund Advisory Committee meeting on May 31, said a person privy to the matter.

Source: Economic Times Sebi may close equity options route for MFs

According to a source, the regulator drafted a discussion paper based on the feedback it received from representatives of the stock exchanges and would soon make it public to get feedback. Thereafter, the details of the mechanisms would be worked out before the final approval.

There was a lot of buzz about the issue of physical settlement and that it is on the back burner. It is not true," said a source, who did not wish to be named as the discussions have not yet been made public. "The discussions took a bit long, but now the initial paper is ready and would be out soon."

Last month, Sebi chairman C B Bhave, on the sidelines of a capital market meeting, said they were in discussion with the stock exchanges on the issue of physical settlement. "We are still in the process of talking to the stock exchanges. Whenever there is some decision taken, we will certainly make it public...we want the market to absorb that decision and then only implement it," he had said.

Source: Business-standard By Ashish Rukhaiyar Sebi paper soon on physical settlement in equity derivatives

The Securities and Exchange Board of India (Sebi) on Monday tightened guidelines for credit rating agencies, by standardising the definition of defaults by bond issuers, and the formula for computing default rates. Also, the capital market regulator has made it mandatory for rating agencies to publish information about the historical default rates of their rating categories and whether the default rates of these categories have changed over time. Such a move will help investors evaluate the performance of the rating agency as well as understand the historical performance of each category.

Sebi has defined default as nonpayment of interest or principal amount in full on the pre-agreed date. "A CRA (credit rating agency) shall recognise default at the first instance of delay in servicing of interest or principal on the rated debt instrument," the Sebi circular said. Senior officials at rating firms said the new Sebi rules would make it easier for investors to compare the ratings by different firms. "There is no point if one firm keeps saying that our default rates are the lowest, and some other firm claims to be better just because their definition of default is different from ours," said Roopa Kudva, managing director and chief executive of Crisil.

In order to improve transparency, the raters will have to maintain records of the rating committee, including voting details and notes of dissent, for a period of five years. "Overall, the Sebi proposals will boost confidence of investors in the rating process, and makes the ratings comparable," said Naresh Thakkar, managing director, ICRA.

Source: Economic Times Sebi Tightens Guidelines For Rating Agencies

A new directive from the market regulator SEBI is coming to effect from Monday as per which institutional investors will have to pay upfront 100 per cent money in primary issues, just like the retail investors.

Analysts have given mixed responses to how the new norm would impact the IPO subscriptions, at a time when the primary market is seeing a lot of activity.

"While this move may bring down subscription from IPOs, it should not affect recovery of the primary markets. Also, it is a means of encouraging greater accountability and reducing speculation, so it is desirable in the long run," financial research firm Celent senior analyst Anshuman Jaswal said.

Source: The Pioneer SEBI brings parity between small & large investors in IPO bids

Sebi defines sub-accounts as entities that include foreign companies, foreign individuals and institutions, funds or portfolios established or incorporated outside India, on whose behalf FIIs propose to make investments in India.

The market regulator is keen to completely re-work the Know Your Client (KYC) norms along with the application for a sub-account transfer.

"There have been instances where investors have preferred seeking fresh registrations than applying for transfers, merely to avoid the transfer-related hassles," said Nirav Merchant, Associate Partner, Majmudar & Co.

Until now, transfer of a sub-account to another FII required an application to the regulator, accompanied by a declaration from the proposed FII that it was authorised to invest on behalf of the sub-account.

Source: Business-standard By Ashish Rukhaiyar & Vandana Sebi to get strict with FII sub-accounts

The committee, headed by former Reserve Bank of India governor Bimal Jalan and reviewing the regulatory architecture of stock exchanges, has also sought comments on issues related to listing of stock exchanges, cross-listing and restrictions on owning clearing corporations.

In a public notice, the committee has asked stock exchanges, depositories and clearing companies to respond to these concerns.

The committee was formed to consider issues with regard to the emerging market micro-structure and the evolving role of market infrastructure institutions (stock exchanges, depositories, clearing corporations). It will also review the ownership and governance structure of such institutions to ensure they remain relevant and effective. Market participants have been asked to respond by May 10.

On ownership and governance, the committee has asked the market participants if diversified ownership (as in the case of stock exchanges) or an anchor/strategic investor approach (as in the case of depositories) is a better model.

Source: Business-standard Sebi seeks views on exchange ownership limits, listing

This is part of the guidelines issued by SEBI on Friday for executing power of attorney between brokers and clients.

It will also not permit brokers to transfer funds from the bank accounts of the client for trades executed by another stock broker.

The guidelines have been brought in with a view to prevent the misuse of power of attorney by brokers and depository participants (DP).

PoA shall also not facilitate the stockbroker in merging of balances (dues) under various accounts to nullify debit in any other account, open a broking/trading facility with any stock broker or of opening a beneficial owner account with any DP, prohibit client from operating account.

Not mandatory
PoA would be optional and not mandatory for availing broking or depository participant services.

"Standardising the norms for PoA must not be construed as making the PoA a condition precedent or mandatory for availing broking or depository participant services," a SEBI circular issued on Friday said.

"No stockbroker or depository participant shall deny services to the client if the client refuses to execute a PoA in their favour."

SEBI had noticed clients being compelled to give irrevocable power of attorney to manage their demat account and bank account to pay funds or deliver shares on time to brokers.

"PoA even allowed a broker to open and close accounts on behalf of the client and to trade on client's account without the consent of the client," SEBI said.

Follow norms
SEBI directed stockbrokers and DPs to adhere to these new guidelines for execution of power of attorney from May 1 for new clients and revoke certain authorisations given by the existing client's latest by September 1.

Speaking at a Ficci event, Sebi Executive Director KN Vaidyanathan said distributors needed to be regulated and made to focus on right-selling. "We are tightening the certification process. The distributor examination is going to move to National Institute of Securities Management. They will run it online from May or June. We are going to draw a distinction between passing an examination and certification," said Vaidyanathan.

"We will focus on right-selling. You cannot accuse someone of mis-selling, unless you teach a person right-selling," he said.

The regulator, while pulling up asset management companies for not moving beyond top cities, said it was "shocked" to see that fund houses had not informed investors about the ban on entry load. "Not a single fund house wrote to investors that the ban on entry load is good," said Vaidyanathan, adding that profitability of fund houses had gone up after the ban.

"If you look at the nine months ended December 2009, profits of some fund houses have risen two to three times," said Vaidyanathan.

The capital market regulator recently met some of the top fund houses to understand their fee structure, and recommend changes to make it more investor-friendly .

Most real estate funds collect money from their clients in phases. Assuming , a client wants to invest Rs 100 in four instalments of Rs 25, and the annual management fee is 2%. Ideally, the money manager should charge a fee of 50 paise on every instalment of Rs 25. Instead, he charges the client Rs 2 at the time of the first instalment itself.

According to a person familiar with the matter, the thinking within Sebi is that it is unfair of portfolio managers to charge a fee for the amount they are not managing.

Currently, portfolio managers follow the 2:20 structure, where 2% is the fixed annual management fee, and 20% is the performance management fee.

Source: Economic Times By Reena Zachariah & Apurv Gupta Sebi may cap PMS fees on realty fund

The Securities and Exchange Board of India (Sebi) today asked foreign institutional investors (FIIs) to stop using complex structures of protected cell companies and segregated portfolio companies. In addition, it mandated that the investor base be broad based in case of multi-class share vehicles.

The twin moves are part of the market regulator's plan to curb potential round-tripping through FIIs and also increase transparency.

From now on, all FIIs, whether already registered or not, will have to undertake that they do not follow a protected cell company or segregated portfolio company structure.

Protected cell companies are entities with several cells within the same vehicle. A cell has its own assets, liabilities, a cellular capital, dividends and accounts. Each cell functions as an independent unit within the overall set-up and the debtors and creditors of each cell have no claims against the assets or liabilities of another cell.

Source: Business-standardSebi tightens norms for FIIs

"SEBI has decided to keep in abeyance, till further notice, the enforcement of the above direc- tions with respect to the ULIP schemes," SEBI's quasi-judicial order said. "However, with respect to any new ULIP schemes launched after April 9, the directions mentioned in the said order will be enforced as indicated therein."

Insurers are hurting. "On an average, life insurance compa- nies launch three to four new ULIPs every year and this will impact our fund raising and con- tinuous activity in the market," said a senior official at an insur- ance company on condition of anonymity.

SEBI on Friday had passed a quasi-judicial order restrain- ing 14 life insurance players from receiving money from investors for any product that has an investment component attached to it till the time they get regis- tered with it.

Source: Hindustan Times SEBI nod must for new ULIP

These were some of the amendments made by the regulator to the listing agreement.

Earlier, companies had to disclose their results within 30 days from the end of the quarter.

For annual results the timeline is now 60 days, down from the earlier period of 90 days.

The peer review recommendation is to "ensure that the quality of services rendered by the members of the institute are maintained and enhanced on a continuous basis," said SEBI. Another requirement mandated by SEBI is that the appointment of the chief financial officer (CFO) should be cleared by the audit committee of a company before its management approves it.

This has to be done to ensure that the CFO has adequate accounting and financial management expertise, SEBI explained in a statement.

SEBI has also said that in order to implement the International Financial Reporting Standards (IFRS) and to familiarise companies with it, it has been decided to make it optional for subsidiaries of listed companies to submit consolidated financials in accordance with IFRS.

Submission of standalone results will be according to Indian GAAP.