Summary of this article
Sebi is likely to discuss revamping mutual fund TER structure
The board is expected to take up reforms to the stock lending and borrowing (SLB) framework
The board is also likely to review measures to make it easier for FPIs to operate in India
The Securities and Exchange Board of India’s (Sebi) board is set to meet later this month on December 17, to consider a host of regulatory reforms. Among the major items up for discussion is Sebi’s proposal to exclude all statutory levies from the total expense ratio (TER) charged by mutual funds. The regulator wants securities transaction tax (STT), commodity transaction tax (CTT), stamp duty and Goods and Services Tax (GST) to be kept outside the TER cap and passed directly to investors. At present, only GST on management fees is charged separately, while the rest are absorbed within the TER. Sebi has argued in its October 28 consultation paper that removing these levies from the cap would eliminate confusion and ensure that any future changes in government taxes are reflected more transparently.
The board is also likely to revisit another proposal from the consultation paper: scrapping the additional 5 basis points (bps) that funds can currently charge on schemes that levy an exit load. The provision was originally meant to be temporary, and Sebi now wants it removed entirely. To cushion the impact on asset management companies (AMCs), Sebi has suggested raising the first two TER slabs for open-ended active schemes by 5 bps.
Brokerage costs are another area where the regulator is preparing to tighten norms. Sebi, in its October 28 consultation paper, had proposed a reduction in the brokerage and transaction expenses that can be charged within the TER, from 12 bps to 2 bps for cash trades, and from 5 bps to 1 bps for derivatives.
The board is also set to review reforms to the securities lending and borrowing mechanism (SLBM), which could potentially improve liquidity and enable a more structured regime for short-selling.
Last month, Sebi chief Tuhin Kanta Pandey said that the capital markets regulator will comprehensively review short selling and SLBM after acknowledging that the system remains underdeveloped compared with other jurisdictions.
He had told the audience at the CNBC TV-18 Global Leadership Summit: “An active SLBM scheme is critical for improving price discovery and facilitating interlinkage between the cash and derivatives segments. From a borrower’s perspective, it facilitates the settlement of securities sold short, while lenders can earn a fee on their idle securities.”
The framework for short selling was introduced in 2007 and has remained unchanged since then. SLBM was introduced in 2008 and modified a few times subsequently.
In addition, Sebi is also likely to consider measures to ease business for foreign portfolio investors (FPIs) to increase their participation in the domestic market.
