SEBI Eases Rules For IPOs, Debt Market Fundraising & Mutual Fund Regulations

Mumbai: Capital markets regulator Sebi on Wednesday announced several tweaks to mutual fund regulations around expense ratios and exit loads, seeking to adopt a "balanced" stance which also assuages the asset management industry's concerns. The Sebi board decided to tweak the expense structures for the MF industry by introducing the concept of a base expense ratio (BER), which excludes statutory levies like security transaction tax and GST, which is a departure from the current system focused on total expense ratio (TER). The concept of TER stays, and shall be the sum of the BER, brokerage, regulatory levies and statutory levies. Sebi chairman Tuhin Kanta Pandey told reporters that the taxes and levies vary from time to time and hence BER is a better way of looking at the expenses the industry charges. He said the regulator has settled to opt for "balanced" set of rules rather than the "radical" proposals which had come out as part of the discussion paper earlier this week which had led to investor unease on AMC stocks, and did not reply directly to a question on whether the new set of measures will hurt the profitability of companies or help the retail investors. The Sebi also declared a rationalisation of brokerage limits, cutting the cap of 0.12 per cent to 0.06 per cent, and cut the same for derivative transactions from 0.05 per cent to 0.02 per cent. It also ended an additional 0.05 per cent exit load measure first introduced in 2018. Pandey said the new rules will be applicable from April 1 next year. The Sebi board also overhauled over three-decade-old regulations concerning the stock broking industry to make them more concise and transparent, Pandey said. Markets regulator Sebi board on Wednesday also approved a series of measures aimed at improving investor convenience, easing compliance norms, and deepening participation in the capital and debt markets. As part of the changes, the board, in its meeting, decided to replace the abridged prospectus with a concise and standardised summary of the offer document, limited to key information, to make IPO disclosures more investor-friendly. In a separate move to boost retail participation in the bond market, the board cleared a proposal to allow debt issuers to offer incentives in public issues to select investor categories, such as senior citizens, women and retail investors, to revive interest in public debt issuances. The regulator said its board approved a framework to reduce the compliance burden on large debt-laden companies by raising the threshold for classifying High Value Debt Listed Entities (HVDLEs) to Rs 5,000 crore from Rs 1,000 crore. To further simplify investor servicing, the board approved the abolition of the requirement for issuing Letters of Confirmation (LOCs) by RTAs or listed companies. Instead, securities will be credited directly to investors' demat accounts after due diligence, following investor service requests. Explaining the rationale, Sebi said the proposed changes would streamline the credit process, shorten the timeline for credit of securities to demat accounts from around 150 days to about 30 days, and reduce the risk of loss or pilferage of LOCs, thereby enhancing investor convenience. On IPO-related disclosures, Sebi said the board has approved the availability of a "focused, concise and standardised" summary of offer documents in the form of a draft abridged prospectus at the DRHP stage, in addition to the existing requirement at the RHP stage. The move is aimed at increasing retail investor engagement and participation in the IPO process. In this context, the board also cleared a proposal to rationalise disclosures in the abridged prospectus, which will be hosted on websites as mandated under the regulations. Sebi said the requirement to prepare a separate offer document summary may be dispensed with, subject to consultation with the central government. Separately, to facilitate the transfer of physical securities, the board approved a proposal allowing investors holding original physical security certificates along with transfer deeds executed before April 1, 2019, to lodge such documents during a specified window. Such transfers will be subject to conditions specified by the board and necessary due diligence by RTAs or listed companies, while cases involving disputes or fraud will be excluded. With a view to further enabling ease of doing business, the regulator also approved amendments to the Sebi (Credit Rating Agencies) Regulations, allowing CRAs to rate financial instruments under the purview of other financial sector regulators, even in the absence of explicit rating guidelines from those regulators. At present, CRAs rate bank loans under RBI guidelines, but are constrained from rating certain unlisted debt instruments due to the lack of explicit norms. Sebi said enabling such ratings would improve the availability of ratings across a wider range of instruments and support the development of the debt market. Additionally, the regulator said issuers of non-convertible securities will now be required to transfer unclaimed amounts only once, after completion of seven years from the date of maturity, instead of making multiple transfers when interest, dividend or redemption payments fall due. This change, Sebi said, would also benefit investors by providing a longer window to claim unclaimed amounts from issuers. Currently, such amounts are transferred to the Investor Education and Protection Fund (IEPF) or Investor Protection and Education Fund (IPEF) after remaining unclaimed for seven years. On lines of the fundamental changes to MF and stock brokers, Sebi is also working on similar moves on the settlement mechanism, substantial acquisition of shares and takeovers and listing obligations and disclosure requirements frameworks, he said.