Tightening of rules was the theme for SEBI in 2021

Author : pantomathnse news | Published On : 14 Jan 2022

For capital markets regulator the Securities and Exchange Board of India (SEBI), 2021 was a busy year as the watchdog had a lot on its plate.  

The year saw the regulator tightening the norms for initial public offers (IPOs), disclosures and compliances among other things while also giving its go-ahead on various products, segments and reforms including silver exchange traded funds (ETFs), shorter settlement cycle, gold exchange and a social stock exchange as well. 

Here’s a roundup of the important policy decisions taken by SEBI in the year 2021. 

Primary market

A slew of announcements related to tightening of norms for initial public offers (IPOs) came at the fag end of the year but were undoubtedly among the most important ones. What made it more important was the fact that it came close on the heels of a number of start-up IPOs, which brought to the fore a set of very diverse views from market participants. 

The last week of the year saw SEBI tightening the disclosure and listing guidelines for IPO-bound companies especially those from the start-up sector. It was part of its efforts to safeguard the interests of retail investors. 

Among other things, SEBI capped the quantum of IPO proceeds that a company could use for inorganic growth, while further segregating the limit to be utilised if an acquisition target has already been identified. It also capped the limit that existing shareholders could offload as part of the IPO if the company was a loss-making one – which most start-ups are. 

It also tightened the lock-in norms for anchor investors while tweaking the norms for allotment to high net-worth individuals. 

These amendments assume a lot of significance as most were a direct result of the feedback and analysis of start-up IPOs. Going ahead, many well-known digital majors like Oyo, Pharmeasy, Delhivery, MobiKwik and Ixigo plan to enter the public markets. 

“There are interesting trends such as high subscription levels, efficient regulatory approvals, significantly increasing number of offerings on one side and we have regulatory relaxations like reduced lock-in, efficient timelines, transparent disclosure regime and efficient payment mechanism on the other hand,” says Mahavir Lunawat, Founder, Pantomath Capital, a leading mid-market investment banking firm. 

Besides, we have newer products being explored and introduced for the development of the market quite pro-actively, he adds. Related-Party Transactions

If one had to pick one aspect or element of the stock markets that has seen the maximum red flags in terms of governance, it would be related-party transactions. For long, market participants, including proxy advisory firms, have been highlighting instances wherein promoters along with persons acting in concert have been trying to put their interests ahead of those of the minority shareholders. 

In September, SEBI tightened the norms for related-party trades as it felt that such transactions were, at times, used to circumvent the regulatory framework for siphoning of funds, among other things. SEBI amended the definition of a related party to include all entities that are part of the promoter or promoter group irrespective of their shareholding.   

SEBI chairman Ajay Tyagi had said at that time that related party transactions were being misused by many entities in various ways, including for siphoning of funds, and hence there was a need to tighten the framework and safeguard the interest of the minority shareholders. 

Products, Processes & Segments 

The year saw SEBI giving its final go-ahead for silver ETFs, which were in the making for many years. While gold ETFs have been in existence for many years and have been quite popular as well, ETFS based on silver were a long-standing demand of the mutual fund industry. 

The regulatory watchdog also approved two new segments in the form of social stock exchanges and a spot gold exchange as well. While a gold exchange would enable trading in digital gold by way of ‘Electronic Gold Receipt’, a social stock exchange would allow social enterprises – both non-profit organisations and for-profit ones – to raise funds on a public platform. 

Another landmark announcement by the regulator this year was regarding the shorter settlement cycle – known as T+1 in market parlance. Under the T+1 settlement cycle, a buy transaction will see the shares credited in the demat account just a day after the trade day. In the case of a sale transaction, the money would be credited the next day. 

Incidentally, the existing settlement cycle of T+2 was introduced in April 2003, prior to which the stock market operated on a T+3 cycle. 

In August, SEBI also gave its in-principle approval for a shift from the promoter concept to 'person in control' or 'controlling shareholders' regime, which is the norm in most of the developed markets. 

In October, SEBI barred registered investment advisors from offering any official advice on new-age asset classes but unregulated ones like cryptocurrencies, non-fungible tokens (NFTs) and digital gold. 

SEBI has also issued a consultation paper to rein in third-party unregulated algos as it feels that unregulated/unapproved algos could pose systemic market risks. 

Relaxations

Meanwhile, there was a fair share of relaxation as well when SEBI eased the norms related to the lock-in of shares held by promoters of IPO bound companies. In August, it decided that the minimum 20 per cent stake of promoters that is locked-in for three years post the IPO will remain locked-in for only eighteen months, subject to certain conditions. 

SEBI also relaxed the disclosure obligations for entities that acquire or sell shares aggregating to 5 per cent in a year or any change in excess of 2 per cent thereafter. The obligation for disclosures in such cases would be done away with effect from April 1, 2022. 

The regulator has also done away with the provision that entities that acquire between 2 per cent and 5 per cent in a stock exchange have to get a post-facto approval from SEBI to ensure that they comply with the 'fit & proper' criteria. 

Earlier this year, SEBI also amended the delisting norms while relaxing the rules for shares with superior voting rights. 

In terms of improvement, I firmly believe if we can usher in longer term investment culture, moving away from short term listing gains, it would be a big boon for the market and we would witness immense wealth creation for investors at large, and also increasing number of Indian businesses getting built on global scale, says Lunawat. 

Source credit:- https://www.businesstoday.in/

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