The Securities and Exchange Board of India (Sebi) on Thursday announced a slew of reforms which include approval for trading of both stocks and commodities on a single exchange, easing rules for foreign investors, and capping of cross-holdings in rating agencies as well as mutual funds to safeguard investors' interest. Besides, Sebi allowed listing and trading of security receipts issued by ARCs (Asset Reconstruction Companies) to enhance capital flows and help deal with bad loans in the banking industry.
However, it deferred a decision on making it mandatory for listed firms to immediately inform investors about any loan defaults. Sebi also relaxed its regulations for real estate and infra investment trusts and paved the way for providing more avenues for listed firms to meet the minimum 25 per cent public shareholding norm. Announcing the decisions, Sebi chairman Ajay Tyagi said further discussions are needed on the loan default disclosure norms, which were originally to come in force in October but had to be deferred amid reservations on some clauses from banks and some other quarters.
some other quarters. On convergence of stock and commodity exchanges, Tyagi said all bourses will be able to provide trading in all permitted products from October 1, 2018. The move will benefit BSE and National Stock Exchange (NSE) and Multi Commodity Exchange (MCX) which currently deal with either equities or commodities. Welcoming the Sebi decision, BSE's CEO Ashishkumar Chauhan said this will help participants in various markets get a a highly regulated, safer, more transparent trading, clearing and settlement framework when implemented fully. On REITs, Sebi said these trusts can now invest at least 50 per cent stake in holding companies. Sebi had notified REIT/InVIT Regulations in 2014 for listing and trading of such trusts, which are very popular in some advanced markets.
While there have been a few InVITs that have hit the market, the response for REITs has not been encouraging so far in India. As part of a green initiative, Sebi also allowed companies to use electronic mode of communication for informing investors about refund orders, share allotments and other such messages.
According to present requirements, refund orders, allotment letters and share certificates are dispatched by way of registered post or certificate of posting. In another decision, Sebi said that cross-holding among credit rating agencies will be capped at 10 per cent and minimum networth requirement must be increased to Rs 25 crore from Rs 5 crore at present. Besides, it has suggested greater disclosure requirements for CRAs. The proposed norms will impact global rating agencies like S&P, Moodys and Fitch which have significant holdings in domestic agencies apart from their direct presence.
To avoid any conflict of interest, Sebi also decided to put a 10 per cent cross-shareholding cap in mutual funds. This will have an impact on the shareholding pattern of UTI Asset Management Company (AMC), requiring its promoters to lower their stake to 10 per cent or below in next one year. For foreign portfolio investors, Sebi decided to relax entry norms, including by expanding the eligible jurisdictions for registration by including countries with diplomatic ties. Besides, the regulator will rationalise fit and proper criteria for FPIs and simplify the broad-based requirements for such investors.