SEBI Rejigs Rules On Buyback, Auditor Tenure, FPI Registration

The Securities & Exchange Board of India (SEBI) rejigged several rules, including buyback of securities, provisions related to tenure of auditor and registration of foreign portfolio investors, in its board meeting on 20 December.

The board approved to amend the SEBI (Buyback of Securities) Regulations 2018 after considering the various suggestions received from stakeholders, India’s capital markets regulator said in a statement.

Key Decisions Related To Buyback Of Securities

• Buyback Through Stock Exchange Route:

  • Buyback through stock exchange route to be phased out in a gradual manner.

  • Increasing the minimum utilization of amount earmarked for buyback through stock exchange route to 75% from existing 50%.

  • Creation of a separate window on stock exchanges for undertaking buyback until the time buyback through stock exchange is permitted.

• Buyback Through Tender Offer Route:

  • Reduction in timeline for completion of buyback by 18 days by removing the requirement of filing draft letter of offer with SEBI and its observations.

  • Reduction of duration of the tendering period and period available for payment of consideration to the shareholders.

  • Permitting upward revision of buyback price until one working day prior to the record date.

  • Making it mandatory to place the relevant advertisements/documents related to buyback in the respective website of the stock exchange(s), merchant banker and the company for better dissemination of information to shareholders.

IMPACT: These amendments aim to streamline the process of buyback, create a level playing field for investors and promote ease of doing business.

Key Decisions Related To Auditor

• To streamline provisions related to tenure of auditor, computation of leverage, unclaimed/unpaid distribution and other provisions for real estate investment trusts (REITs) and infrastructure investment trusts (InvITs), the regulations will be amended to provide as under:

• Tenure of auditor to be until the conclusion of the fifth annual general meeting of unit holders.

• Statutory auditor of REIT/InvIT to undertake limited review of audit of all the entities or companies whose accounts are to be consolidated.

• Investment in overnight fund to be considered as cash and cash equivalent for the purpose of computation of leverage.

• Unclaimed/unpaid distributions for REIT/InvIT to be transferred to the ‘Investor Protection and Education Fund’ constituted by SEBI.

Key Decisions Related To Foreign Portfolio Investors (FPIs)

To streamline the on-boarding process to facilitate ease of doing business and reduce the time taken for registration of FPIs, the board approved the followings:

• Granting registration on the basis of scanned copies of application forms/supporting documents and activation of trading post verification of physical documents.

• Acceptance of use of digital signatures by FPIs for execution of registration related documents.

• Permitting use of SWIFT mechanism for certification, by authorized bank officials, of copies of original documents submitted by FPIs to designated depository participants (DDPs).

• Permitting verification of PAN by DDPs through the Common Application Form.

• Submission of unique investor group ID by FPI applicants in lieu of complete details of group constituents.

The board also approved amendments in the SEBI (Foreign Portfolio Investors) Regulations 2019 for providing clarity on the various timelines given in the regulations.

Key Decisions Related To Market Infrastructure Institutions (MIIs)

The board approved various amendments to the regulations for MIIs (stock exchanges, clearing corporations and depositories) to strengthen the focus and governance mechanisms in such institutions.

Some of the key decisions related to MIIs are as under:

• The functions of MIIs to be categorized into three verticals:

  • Critical operations.

  • Regulatory, compliance and risk management, including the role of MIIs as first level regulators of intermediaries and listed entities, as well as investor grievance redressal.

  • Other functions, including business development.

• The key management personnel (KMPs) heading the functions under the first two verticals to be at par in hierarchy with the KMPs heading the third vertical.

• The definition of KMPs to be changed to cover employees based on importance of activities carried out by them and their relative hierarchy within the MII.

• The MIIs will appoint a separate chief risk officer, who would be in-charge of handling risks associated with the MII.

• A sharper code of conduct will be applicable to the MII, the governing board, directors, KMPs and committee members. Further, board members and KMPs will be held accountable if they are aware of wrongdoing(s) and do not appropriately report the same.

IMPACT: These regulatory changes are expected to bring in greater transparency and accountability in the functioning of MIIs. The amendments will come into effect from 180 days from the date of notification in the official gazette.