SEBI Board Meeting Highlights: 8 New Rules Introduced By The Market Regulator

The Securities Exchange Board of India held its 208th board meeting in Mumbai on December 18. The markets regulator has introduced several new regulations at its meeting which are aimed at safeguarding investor interests and on enhancing key aspects of existing regulations.

The newly introduced norms range from tighter norms for SME Initial Public Offers (IPOs) to amendments focused on New Fund Offers (NFOs). Here’s a look at some of the key changes introduced by the regulator: 

Amended Framework For SME IPOs

The markets regulator has mandated that companies which wish to float their IPOs on the SME IPO board need to have operating profits of Rs 1 crore in at least two of the previous three financial years. The regulator has also directed that those SME issues where the objectives of the issue include using the money raised via the public issue for repayment of loan from promoter, promoter group or any related party will not be permitted.

Additionally, the amount of money which can be used for General Corporate Purposes (GCP) by SMEs has been capped at Rs 10 crore or 15 per cent of the amount being raised. The SEBI has also introduced a maximum limit for promoters and other major stakeholders offloading their stake in the Offer-For-Sale (OFS). As per the new rule promoters and major stakeholders can only offload a maximum of 50 per cent of their stake in the OFS.

The market regulator has introduced a rule which aims to align the allocation methodology for Non-Institutional Investors (NIIs) for SME IPOs with the allocation methodology used in mainboard IPOs. Another major amendment introduced by the regulator includes allowing SME companies to conduct Further Issues (FPOs) without migrating to the mainboard.

Revised Regulations For Merchant Bankers

The SEBI approved an amendment to the SEBI (Merchant Bankers) Regulations, 1992 on Wednesday. Merchant bankers (other than banks, public financial institutions, and their subsidiaries) can undertake only permitted activities. However merchant bankers can undertake other regulated activities as a separate business unit after registering with the respective regulatory authority.

Merchant Bankers have been directed to maintain a liquid net worth of at least 25% of the minimum net worth requirement, always as per the amendment. The underwriting limit for merchant bankers has also been fixed at 20 times the liquid net worth.

Changes In ESG Compliance

The SEBI has granted companies more time to comply with Environmental, Social and Governance (ESG) reporting. The regulator said that the mandatory reporting of value chain data has been deferred by one year to FY 2025-26 and will remain voluntary until then.

AI Usage Rules For SEBI Regulated Entities

The SEBI has directed regulated entities such as Market Infrastructure Institutions (MIIs), Asset Management Companies and managers of pooled investment vehicles who use Artificial Intelligence tools to take full responsibility for their use of such tools.

The scope of the responsibility includes protecting the privacy, security and integrity of investors and stakeholders' data including data maintained by the AI based tool in a fiduciary capacity, throughout the processes involved. The scope also includes the output generated from the usage of such tools and techniques it relies upon or deals with.

Easing of Norms For Raising Funds Via Debt

The SEBI has introduced new norms for the listing of debt securities which aim to make the process of raising money through bonds and debentures easier for companies. The measures include mandating issuance and transfer of listed or soon to be listed debt instruments only in dematerialised (Demat) form.

Stringent Norms For Enhanced Corporate Governance

The markets regulator has introduced stringent norms which are aimed at enhancing corporate governance standards. As per the new norms companies are required to disclose details on related-party transactions and the use of funds to ensure greater transparency for investors.

Amendment To NFO Rules

The SEBI approved amendments to rules which deal with the timelines for deployment of funds collected by mutual funds in New Fund Offers (NFO). The amendment is aimed at providing a timeline within which the fund manager will be required to deploy the funds collected in an NFO as per the asset allocation pattern of the scheme.

The new framework aims to encourage AMCs to collect only that amount as funds via the NFO which can be deployed in a reasonable period (30 days). In case the fund manager is unable to deploy the funds within a reasonable period investors can exit the scheme without being charged an exit load as per the amendment.

Investor Protection For REITs and InvITs

The market regulator has approved reforms which are aimed at increasing investor protection for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). As per the new regulation REITs and InvITs are permitted to invest in unlisted equity shares of companies which provide property management, property maintenance, housekeeping, project management and other incidental services to the REIT and InvIT assets. Additionally, REITs and InvITs can also invest in liquid mutual fund schemes where the credit risk value is at least 12 and falls under the Class A-I in the potential risk class matrix as per the amendment.

New Rules For Alternative Investment Funds (AIFs)

The SEBI approved a proposal to review SEBI (Custodian) Regulations, 1996. The new guidelines mandate that a dedicated net worth of Rs. 75 Crore shall be maintained by custodians. Existing custodians have been directed to achieve the same within three years.

As per the new norms AIFs will need to provide detailed quarterly disclosures on their investments, valuations, and performance to help investors to track their money more effectively.