SEBI approves new asset class for HNIs, passive fund framework; rights issue timeline slashed: 5 key highlights | Stock Market News

Capital markets regulator Securities and Exchange Board of India (SEBI) conducted its board meeting on Monday, September 30 and approved key measures for easing trading practices for regular investors and simplifying norms in the mutual funds (MF) industry. The market watchdog surprised investors by refraining from announcing measures to limit a surge in derivatives trading, as was widely expected by D-Street experts and traders.

SEBI Chairperson Madhabi Puri Buch had described the surge in derivative trading as a ‘macro issue’ that diverts capital from productive use in the economy. Her warnings — and tax hikes coming into effect next month — have helped lower the volume of contracts traded from a record $6 trillion in February.

SEBI Board Meeting Outcome: Here are five key highlights

1.New asset class for HNIs with higher risk appetite

SEBI stated that asset management companies can now offer riskier strategies, like long-short equity, to high-risk investors with a minimum investment of ₹10 lakh. Positioned between tightly regulated MFs and lighter-touch portfolio services, this class will give high net worth (HNI) investors exposure to equity derivatives. 

“Offerings under the new product will be referred to as ‘Investment Strategies’, to maintain clear distinction from the schemes offered under the traditional MFs. The minimum investment limit for the new product will be ₹10 lakh per investor across all investment strategies of the new product in a particular AMC. The new product is intended to add depth and variety to the country’s investment landscape through a new asset class,” said SEBI.

The safeguards for the new product will include no leverage, no investment in unlisted and unrated instruments beyond those already permitted for mutual funds and derivatives exposure limited to 25 per cent of assets under management (AUM) for purposes other than hedging and rebalancing.

2.Introduction of MF Lite framework for passive funds

SEBI introduced a relaxed framework with light-touch regulations, ‘MF Lite,’ for entities desirous of launching only passive mutual fund schemes. The MF Lite framework or light-touch regulations include relaxed requirements relating to eligibility criteria for sponsors, including net worth, track record, profitability, the responsibility of trustees, approval process, and disclosures.

The framework intends to promote ease of entry, encourage new players, reduce compliance requirements, increase penetration, enhance market liquidity, facilitate investment diversification and foster innovation.

Various provisions of the existing regulatory framework may not be relevant for passively managed schemes. A relaxed framework with light-touch regulations has been approved as MF Lite Regulations for passive MF schemes.

SEBI said that existing AMCs with active and passive schemes will have the option to hive off respective passive schemes, if they so desire, to a different group entity, resulting in the management of active and passive schemes by separate AMCs under a common sponsor.

If they choose to continue the passively managed schemes within the existing AMCs under the existing MF Regulations, the relaxed disclosures and other regulatory requirements for the passive schemes based on indices covered under the MF Lite framework will also apply to them.

3.Rights issue timeline slashed to 23 days

SEBI has approved norms to enable faster rights issues through the preferential allotment route. This new route can be completed in 23 days from the issuer’s board meeting approving the rights issue, versus the present timeline of 317 days, and faster than the 40 working days needed to complete the preferential allotment.

SEBI approved discontinuing the current requirement of filing a draft letter of rights offer with Sebi of its observation. Instead, it will be filed with stock exchanges for its in-principle approval, as the entity is already listed. Stock exchanges would confirm that the issuer complies with LODR disclosure requirements.

SEBI called for “rationalization of the content of Letter of Offer to contain only the relevant incremental information regarding rights issue viz. object of issue, price, record date, entitlement ratio, etc.” SEBI also dispensed with the mandatory requirement that an issuer appoint a merchant banker and made it optional subject to completion of rights issue within 23 working days.

“With reduced timelines, corporates can have faster access to funds through rights issues. Revised rights issue timelines would make it a preferred option for fundraising as it allows all existing shareholders to be a part of the company’s growth story,” said Makarand M Joshi, Founder MMJC and Associates, a corporate compliance firm.

4.Expansion of ‘connected person’ under insider trading norms

SEBI expanded the definition of “connected person” and “immediate relative” under insider trading regulations to facilitate effective investigation and enforcement against insider trading. Spouse, child, parent, and sibling of the person have been added under the definition of ‘relative’.

“SEBI’s decision to expand the scope of connected persons would increase the scope of the prohibition of insider trading regulations,” said Makarand M Joshi.

“It would bring within its ambit many more persons (viz, a person sharing a household or residence with a ‘connected person, a firm or its partner or its employee in which a ‘connected person’ is also a partner, etc). who are indirectly associated with the securities market through intermediaries, fiduciaries or distant relatives of persons working in listed companies,” he added.