No merit in relaxing 10% cap on single stock investment: Sebi chief

 The market regulator Securities and Exchange Board of India (Sebi) sees no merit in increasing the 10 per cent investment cap on a single stock for actively-managed mutual fund (MF) schemes.

“The 10 per cent cap is meant for diversification cap. Just because some scrip is outperforming doesn’t mean you raise the ceiling. That will be self re enforcing that a scrip has moved up and you are allowing higher investment in the same scrip. That doesn’t sound very logical. For the sake of diversification, the 10 per cent ceiling is something which stays,” said Ajay Tyagi, chairman, Sebi while addressing the media at a market summit organized by industry body CII.

As the weightage of India’s most valuable company Reliance Industries has neared nearly 15 per cent in the benchmark Sensex and Nifty indices, the MF industry has highlighted the challenges it faces in matching the returns generated by the benchmarks.

“Undoubtedly, there are challenges in performance measurement as indices do not have a cap on stock whereas mutual fund schemes have a cap of 10 per cent on a stock,” industry body Amfi has said in a recent communication.

When asked about the operational challenges highlighted by foreign portfolio investors (FPIs) to reduce the trade settlement cycle to T+1, Tyagi said, “To have an early settlement is in everyone’s interest. It will help increasing liquidity and reducing margins. It cannot be anyone argument that we want to settle it late. But there are some operational issues with regards to FPIs and custodians because of time differences and other factors. We will take everyone’s view and suggestions before finalizing anything.”

ALSO READ: No proposal to Sebi for new index, will follow cap on stock norms: Amfi

On rising instances of brokers defaults, Tyagi said Sebi has reviewed the matter extensively and will soon take corrective measures. He said there is a cause to boost the amount lying in the investor protection fund (IPF)

“I agree that investor protection fund is woefully insufficient. We have examined this and will soon take action in consultation with stock exchanges to increase the IPF. We will not allow that to be criteria to delay payment in case of broker default.”

Tyagi also said there is a merit in the proposal by some industry players of introducing capital adequacy for the broking industry.

“There are all types of brokers in the system. The net worth requirement was set almost a decade back. So that area needs reform. We will examine this. Capital adequacy should be the first level of consideration.”

The Sebi chief also said delivery-based trading needs to be encouraged. He said the regulator has introduced norms to increase the upfront margins for intra-day trades, which will kick in from December. “This will further reduce speculation.”

Tyagi expressed concerns over the issue of resignation of independent directors.

ALSO READ: Sebi releases guidelines for utilisation of fund created for farmers, FPOs

“I must admit, the independent director (issue) is a puzzle which we are still trying to deal with. They are the voice of minority shareholders. To what extent they have to be responsible. How they fit in into the board structure. Which are the kind of people that need to be appointed. These are the issues that are troubling us,” he said.

Tyagi said Sebi would urge “resigning directors to come forward and state the same clearly to the public at large and not give cryptic reasons.”

He also called in the industry support in finalizing the norms pertaining to reclassification of promoters as ordinary shareholders. Tyagi said it remains a contentious issue.

In this speech, the Sebi chairman highlighted the positive takeaways from the market this year.

“While one repeatedly hears that the liquidity and low interest rates are the only prime factors driving up the markets, and that there is a disconnect between the market and the real economy, I would like to place before you certain positive aspects of the market recovery.”

Tyagi said the contrary to popular perception, the gains in the market post-covid have been broad-based. He also highlighted that the investor participation and trading turnover have increased substantially over last year. He said 6.3 million demat accounts have got added in the first half of the current fiscal compared to just 2.74 million during the same period of last fiscal.

He also said India has received strong FPI flows even as our emerging market peers have seen outflows. Tyagi also said primary markets too have done well after a bit of a lag.

Sebi announces initiatives to boost 'data culture' in the country

 

Market regulator Sebi on Monday announced several initiatives to boost ‘data culture’ in the country.

In order to facilitate easy access to markets data and to encourage research, Sebi has set up a web page to provide curated links of publicly available data on various segments of the Indian securities market.

It has also constituted a market data advisory committee (MDAC) to recommend appropriate policy for access to securities market data, identify segment wise data perimeters, data gaps and privacy. The standing committee will be chaired by Madhabi Puri Buch, Whole Time Member, Sebi.

“Sebi recognises that non-private data is a public good and that access to high-quality standardised data on various securities market activities is essential for fostering market transparency, operational efficiency and innovations in Indian securities market. Sebi’s endeavour is to foster a ‘data culture’ in the indian securities market,” the regulator said in a release.

SEBI constitutes panels to suggest policy for securities market data

 

The Securities and Exchange Board of India (SEBI) has constituted a Standing Committee -- Market Data Advisory Committee (MDAC) -- to recommend appropriate policy for access to securities market data.

The committee would identify segment-wise data perimeters, data needs and gaps, recommend data privacy and data access regulations applicable to market data among others.

The panel chaired by Madhabi Puri Buch, Whole Time Member, SEBI has CEOs of stock exchanges and depositories, representatives of various stakeholders and senior officials of SEBI as members, a SEBI statement said.

Financial markets are traditionally data rich and data driven. The securities market regulator noted that with ever growing financial markets, the volume and variety of data have also increased many fold over the years and will continue to do so.

With increasing size and complexity of financial markets, the importance of data for research, decision making, and innovations in financial markets cannot be over emphasised, it added.

"SEBI recognises that non-private data is a public good and that access to high quality standardised data on various securities market activities is essential for fostering market transparency, operational efficiency and innovations in Indian securities market," it said.

According to the regulator, MDAC is part of SEBI's initiatives to make shareable data on the Indian securities

market, available for researchers, policy makers, general public alike and to enhance the quality of such data.

Sebi releases guidelines for utilisation of fund created for farmers, FPOs

 Markets regulator Sebi on Monday allowed exchanges dealing with agri-commodity derivatives to utilise the fund created for farmers and FPOs for reimbursement of mandi tax and charges incurred by them on storage and transportation of goods.

The decision was taken based on the recommendations of the Commodity Derivatives Advisory Committee (CDAC).

The Securities and Exchange Board of India (Sebi) in 2019 asked the exchanges to create a fund for farmers and Farmer Producer Organisations (FPOs) in which the regulatory fee forgone by the regulator would be deposited.

The exchanges were asked to utilise the fund exclusively for the benefit of and easy participation by farmers or FPOs in the agricultural commodity derivatives market.

In a circular, the regulator said due to low participation by farmers and FPOs in the agricultural commodity derivatives market coupled with the challenges posed by the pandemic situation, a sizeable portion of the fund has remained unutilised.

Accordingly, it has been decided to permit the exchanges to utilise the fund for additional activities, including reimbursement of mandi tax and any other mandi cess levied against the goods deposited in warehouses accredited with clearing corporations for the purpose of delivering on the exchange platform.

In addition, the funds can be used for reimbursing the charges incurred by farmers or FPOs towards assaying, cleaning, drying, sorting, storage and transportation in respect of goods.

Further, farmers or FPOs can be incentivised to participate in "options in goods" from the fund.

"For this purpose, the Farmers / FPOs can reimbursed a certain percentage or fixed amount of the premium paid by them, for purchasing 'options in goods' on the exchange platform," Sebi said.

It further said fees levied by Clearing Corporation, if any, on farmers/FPOs in the process of their participation in commodity derivatives trading can be reimbursed.

Sebi said exchanges can revise their action plan for utilisation of regulatory fee foregone by Sebi for FY2020-21 incorporating these activities and the revised plan, if any, will be disseminated on their website.

Further, in order to enhance transparency, the exchanges have been asked tomake disclosure regarding the corpus of the fund and its utilisation, on theirwebsite on a monthly basis.

Also, they have been asked to include the details of the corpus of the fund and its utilisation in the Monthly Development Report (MDR).

These directions will be effective from Monday, Sebi said.

Cut-off time for equity MFs to be restored from Monday, says Amfi

 Capital markets regulator Sebi will restore the cut-off timing for buying and selling of equity mutual fund units to 3 pm from Monday, according to industry body Amfi.

However, the existing truncated cut-off time would continue for debt and conservative hybrid funds.

In a tweet, Amfi Chairman Nilesh Shah said cut-off timing for both subscription and redemption for all schemes other than those categorised as debt schemes and conservative hybrid fund is being restored to original cut-off timing of 3 pm, effective, October 19.

The move comes following a request by the industry body Association of Mutual Funds in India (Amfi).

Earlier in April, Sebi had reduced cut-off time for subscription and redemption of mutual funds, including liquid and overnight schemes due to coronavirus pandemic.

The regulator had reduced cut-off time for availing the same day's net asset value (NAV) for mutual fund schemes to 1 pm from 3 pm.

For liquid and overnight funds, the time was advanced to 12.30 pm from 1.30 pm.

The Reserve Bank of India (RBI) in April had reduced debt and currency market hours permitting trades only from 10 am to 2 pm.

Exchanges can offer direct mutual fund plans with fresh boost from Sebi

The direct plans offered by mutual funds (MFs) can get major boost with the Securities and Exchange Board of India (Sebi) now allowing investors to use exchange platforms to buy and sell their units, which could lead to exchanges offering such plans to MF investors.

"In order to further increase the reach of this platform, it has been decided to allow investors to directly access infrastructure of the recognised stock exchanges to purchase and redeem mutual fund units directly from mutual fund and asset management companies," Sebi said in its circular on Wednesday.

"This is expected to provide level playing field to exchange MFdistribution platforms vis-a-vis MF utility," said Ganesh Ram, Head of BSE Star MF.

At present , the assets under direct plans stand at Rs 11.97 trillion, whereas those under regular plans stand at Rs 15.89 trillion.

Apart from BSE Star MF, NSE NMF II is another exchange platform which is presently used by MF distributors and other intermediaries for transactions.

Earlier, Sebi had allowed exchange platforms to be used by MF distributors for buying and selling MF units on behalf of their clients. Later, registered investment advisors were also allowed to use the platforms of exchanges.

The market regulator in the past has expressed its interest in growing the asset base under direct plans.

With the view of investors using low-cost options, the regulator in the past has urged the MF industry to increase awareness for direct plans and exchange traded funds.

A direct plan is a mode of investment in which the MF investor bypasses any intermediary and makes a 'direct' investment. Such plans are available at lower expense ratios as the investor is not required to bear commission expenses that MFs pay to distributors.

According to industry participants the move could help the industry deepen penetration in smaller cities -- also known as beyond the top-30 citites (B-30).

"In smaller citites, digital channels can help in onboarding investors. In these parts , we see lowered presence of intermediaries and such a move can make a larger impact," said chief executive of a fund house.

Sebi probe finds undisclosed related party transactions at IndiGo: Report

A preliminary probe by markets regulator Sebi has suggested prima-facie violations of corporate governance and listing disclosure norms in certain related party transactions involving budget carrier IndiGo's parent firm InterGlobe Aviation Ltd, sources said.

While the company said it has not received any communication from Sebi in this regard, shares plunged sharply in afternoon trade on Tuesday.

IndiGo has been facing a probe by the Securities and Exchange Board of India (Sebi) ever since a public spat came to light between two founders of the airline, including over certain related party transactions involving one of the warring promoters.

The sources said that a preliminary probe has now suggested violation of certain listing disclosure norms as also of fair corporate governance practices at the company.

InterGlobe shares closed 4.68 per cent lower at Rs 1,376.70 apiece on the BSE, after hitting an intra-day low of Rs 1,334 in afternoon trade after a sudden plunge following media reports about the Sebi probe.

"We would like to state that the news item published in some media reports is factually incorrect and the company has not received any communication from Sebi in this regard," the company said in a filing to the BSE.

This came after the exchange sought a clarification from the company on the reports.

There was no official word on the probe from Sebi, which has been conducting a thorough probe into the IndiGo matter. All agreements between the two warring founders as well as those between the company and its various investors and associates, including related parties, are being looked into by the watchdog.

The probe has suggested that some of the related party transactions could have been significant and required detailed disclosures and greater vetting by board committees comprising of independent directors, the sources said.

The differences between co-founders and co-promoters -- Rakesh Gangwal and Rahul Bhatia -- came to the fore in July 2019 after Gangwal sought market regulator Sebi's intervention to address alleged corporate governance lapses at the company.

In the wake of the feud, arbitration proceedings are also going overseas between the two promoters' sides.

Last month, InterGlobe Aviation's shareholders rejected a proposal of Rakesh Gangwal to amend the company's Articles of Association (AoA).

Generally, an AoA provides the regulations for operating a company.

Rakesh Gangwal (RG) Group and related entities together hold 36.64 per cent stake while Bhatia and affiliates -- InterGlobe Enterprises (IGE) Group -- have around 38 per cent shareholding in the company.

Sebi probe finds violation of listing and disclosure norms by Sun Pharma

The Securities and Exchange Board of India (Sebi) has found that Sun Pharmaceuticals had violated its listing and disclosure norms by not revealing the related-party transaction with Aditya Medisales (AML), an entity owned by the drugmaker’s promoters that distributed its formulation in India.

The probe, however, did not confirm the alleged misappropriation of funds to the tune of Rs 42,000 crore, said two people privy to the development.

According to them, the Sebi's investigation department in its findings has recommended adjudication proceedings against the pharma major under Section 15 of the Sebi Act, which entails financial penalty if found guilty.

The Sebi's investigation concluded last week following a forensic audit report submitted to the regulator a fortnight ago. The market regulator had in September 2019 ordered the audit to examine the whistle-blower complaints on corporate governance lapses and alleged fund diversion.

"The company has complied with all information requests from Sebi and is cooperating with the regulator," said a Sun Pharma spokesperson in an email query. "In regards to your specific query, we have not received any communication from the regulator. Therefore, we are not in a position to comment on the same," it said.

The investigation report submitted to the Sebi board said the drug maker did not categorise AML as a related party even though the ultimate beneficiary of it was promoter of Sun Pharma, which ought to have been disclosed in public under the prescribed listing regulations, said one of the two persons cited above.

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The non-disclosure of the trade arrangement between the AML and Sun Pharma and classified the former as a distributor is a clear violation of Sebi's listing obligations and disclosure requirements. Typically, the distributor is a third-party which buys drugs from the manufacturer and sells them to customers for a margin. However, in this relationship, Sun Pharma was dealing with a distributor which was also its subsidiary.

The forensic audit is learnt to have scrutinised the detailed methodology of AML's operations such as its agreement with the pharma major.

However, later Sun Pharma did reveal its relationship with AML, which is a pharma distribution company. AML was classified as a promoter shareholder by Sun Pharma. It owns a 1.6 per cent stake in Sun Pharma as of December 31, 2018. Sun Pharma's domestic formulation business is entirely routed through it. AML, a super stockist, was declared as a related party of the company only during FY'18.

Further, the Sebi investigation and even the audit report did not find the alleged transactions of Rs 42,000 crore or siphoning off/personal profits of Rs 10,000 crore as highlighted by the whistle-blower in the complaint letter to Sebi. The findings cited the annual accounts filed by AML, which showed it never had earned profits or borrowings that could substantiate charges made by the whistle-blower.

According to the disclosure, the turnover for FY18 was a little over Rs 8,000 crore. In FY17, it was Rs 7,800 crore; in FY16, Rs 6,000 crore; in FY15, Rs 4,300 crore; and in FY14, the turnover was about Rs 2,000 crore.

Sebi initiated the probe after several allegations were made by the whistle-blower in a 150-page complaint to the regulator accusing Sun Pharma of committing corporate governance and tax-related offences and securities market-related violations.

Sebi issues show-case notice to 2 former senior executives of CARE Ratings

The Securities and Exchange Board of India (Sebi) on Friday issued a show-case notice to two former senior executives of CARE Ratings for their alleged interference in the rating action of YES Bank and Dewan Housing Finance (DHFL), according to sources.

In the notice, Sebi has asked former managing director (MD) and chief executive officer (CEO) Rajesh Mokashi and chairman SB Mainak to explain why they should not be debarred from holding key managerial positions of market intermediaries and listed companies.

The move follows the forensic audit report of EY submitted to the regulator on February 11.

The report had found that the communication by YES Bank and DHFL senior management with CARE’s former bosses on WhatsApp sought a delay in the ratings downgrade.

The audit report also highlights certain instances of holding back ratings so as to not change the assessments of these two entities.

According to the audit report, these two CARE bosses and a few staff members were involved in changing the adverse ratings since 2017. The ratings of these two entities were allegedly manipulated for three month to six months.

An email to YES Bank remained unanswered.

This is the second showcause notice issued by the regulator in the matter. The first notice was issued to CARE Ratings on February 12, where the regulator directed the board to conduct internal inquiry against these two executives and some others involved in the rating process.

The same day, Mainak resigned as chairman. However, sources said the regulator had asked the board of the ratings firm to sack him.

The audit was ordered after Sebi received multiple complaints, including by a whistleblower, about rating being influenced by the agency in certain companies.

CARE has been under Sebi lens for its alleged business and influential ratings in the Infrastructure Leasing & Financial Services (IL&FS) matter.

However, the fresh notices to CARE’s two former employees are not for IL&FS, said the sources.

Mokashi had stepped down as CEO & MD from the rating agency in December 2019, after he was sent on forced leave in July.

In the same month, Sebi had slapped a penalty of Rs 25 lakh each on ICRA, CARE Ratings and India Ratings & Research.

The regulator had said default by IL&FS occurred due to “lethargic indifference and needless procrastination and laxity” of the rating agencies.

However, the market regulator is planning to review the Rs 25 lakh penalty, which had been imposed by its adjudicating officer on the three rating firms. The settlement amount could be revised up to four times higher.

Sebi's expert panel proposes stricter related-party regulations

The Securities and Exchange Board of India (Sebi) on Monday proposed tightening the norms governing related-party transactions (RPTs) at listed companies to prevent their misuse, and safeguard the interest of minority shareholders. The regulator has proposed widening the definition of related party and RPTs, changing the threshold for determining RPTs, and tighter disclosures and approvals.

The recommendations are made by a nine-member expert panel led by Ramesh Srinivasan, managing director & CEO, Kotak Mahindra Capital. Under the current definition, any person or entity belonging to the promoter group of the listed entity and holding 20 per cent or more of the listed entity is treated as a related party. The panel has proposed a change in the definition to cover any person or entity that directly or indirectly exercises control, irrespective of shareholding.

The move is to cover parties that exercise influence on a company. “Considering that promoters may exercise control on promoter group entities and influence decision making on the group, the working group recommended that promoter group members may also be included under the definition of a related party, irrespective of their shareholding,” the panel said. In recent years, Sebi has come across instances of misuse of RPTs by promoters causing losses to minority investors.

“The prevalent use of complex group structures and subsidiaries for RPTs, particularly with unlisted entities, has increased concerns such as siphoning of funds, money laundering and round tripping,” the group said in a discussion paper.

Sebi’s working group debated allowing related parties not concerned with a particular RPT to vote. However, decided against the move fearing misuse.

The expert panel highlighted the low level of minority shareholder voting in the country and empahised the need to maximize informed shareholder participation to curb misuse of RPTs.

The panel has also suggested changes to the disclosure framework to make sure companies provide information in reader-friendly manner.

The panel also suggested strengthening of monitoring and enforcement of norms pertaining to RPTs.

Sebi has invited public comments before February 26. Based on the industry feedback, Sebi will finalise the new framework.

With mandatory pre-trade allocation, Sebi to plug IPO-arbitrage in MFs

The Securities and Exchange Board of India (Sebi) wants to plug the arbitrage play that mutual fund (MF) houses deploy during initial public offering (IPO) to benefit one scheme over another. To meet this end, the market watchdog wants to make pre-trade allocations mandatory for all institutional investors.

“By not informing in advance, which scheme would get what allocation, there is a gap in the system that can be easily misused. Post-allocation, some fund managers can take their own call on which scheme should get the allotted shares, depending upon their view of the company,” said a senior executive of a fund house.

“Such a practice benefits one scheme over another. Some of the arbitrage schemes also take advantage of this. If the investor appetite is strong, the fund house post-allocation might decide to transfer the shares to these schemes, which can make strong short-term gains in the IPO investment,” another executive added.

Apart from IPOs, similar issues have cropped during qualified institutional placements and also bulk deals.

To be sure, some fund houses are following the practice of pre-informing which scheme would get how much allocation, but the regulator wants uniformity in practices across the industry.

According to sources, the regulator also wants to include foreign portfolio investors (FPIs) into this regulation, but the latter may find it difficult to reconcile these norms with their own fiduciary framework.

Industry sources say that there have been cases of MFs misusing this lacuna to the advantage of their flagship schemes.

“A flagship scheme is important for a fund house as it accounts for the largest chunk of assets and lot of investor money is riding onto it. However, still it means that a fund house is giving preference to one scheme over another, which is not fair to the other investors,” said a fund manager, requesting anonymity.

In the case of FPIs, the problem is likely to arise from the regulations that they are already required to adhere to. “The proposal would mean placing orders directly in the name of each account. This would lead to different execution prices as orders get filled at different time. Fund manager would then be forced to allocated at different prices into different funds, which would again be in breach of the fiduciary duty of equitable pricing,” said an official of an industry body.

The proposal on pre-trade allocation was also being mulled over by Sebi in the past, but the regulator was unable to implement it back then.

Govt, Sebi spar over transfer of surplus funds as Budget 2020 nears 67

The stand-off between the Securities and Exchange Board of India (Sebi) and the Central government over transferring the former’s surplus funds to the exchequer is likely to linger.

Ahead of the Budget, the Centre, which is eyeing these resources to reduce its fiscal deficit, recently sought a status report from Sebi, the market regulator. The government wants to decide on the plan of the surplus transfer in line with the new rule.

“The departments concerned in the finance ministry recently sought details from the market regulator about the reserves to systemise its income and expenses and accordingly make the revenue estimates for the current financial year and also the Budget estimates for FY21,” said a source privy to the development.

Sebi, on the other hand, has yet to comply with the provisions of the Finance Act, 2019, which mandates a 75 per cent cash transfer from its general fund to the government’s books, after creating a “reserve fund” of the annual surplus.

The transfer is proposed to take place after Sebi incurs all expenses mandated under the law establishing it.

Though the amount may not be big enough to help the government bridge its fiscal deficit to any great extent, it is important for Sebi to maintain its autonomy, sources said.

According to the amended law, Sebi can keep 25 per cent of its annual surplus, which should not exceed its annual expenditure in the preceding two financial years. The balance will be transferred to the Consolidated Fund of India. According to officials, Sebi’s surplus was Rs 3,606 crore as of March 31 last year.

Budget 2020: Centre, Sebi spar over transfer of surplus funds to exchequerGoing by these provisions, Sebi might have to transfer around Rs 2,800 crore to the central government in the current financial year.

The norms in the Finance Act have automatically amended the Sebi Act after the Bill was passed in Parliament. However, Sebi has opposed the move after the amendment in the Act, seeking a review.

The regulator is learnt to have sent at least two letters to the Department of Economic Affairs after the decision was made.

In both, the regulator said the proposal was made in haste without consultation and any such decision should be taken by the Financial Stability and Development Council (FSDC).

The FSDC is chaired by the Union finance minister and the heads of all financial sector regulators including Sebi are its members.

Sebi is of the view that its reserve fund is important in protecting the interests of investors. The government move has also been opposed by the Sebi Employees Association (SEA), a brokers’ forum, and many other market participants, who are saying it amounts to an infringement of the independence of the regulator.

An e-mail sent to Sebi did not elicit a response.

Another argument from Sebi’s side is that the new provision is like an additional tax because the regulator levies fees on intermediaries for rendering services but the move to transfer funds would become an additional tax on market participants.

However, the government wants to address the accumulation of huge surplus funds lying with Sebi and other financial regulators.

Sebi asks InvITs to file draft papers 30 days before opening of issue

Sebi on Tuesday asked infrastructure investment trusts (InvITs) to file draft papers with the regulator and exchanges 30 days prior to opening of the issue.

The draft placement memorandum shall be filed through a Sebi registered merchant banker, the markets watchdog said in a circular.

"The circular shall come into effect from January 15, 2020 for all InvITs issuing units on private placement basis and are proposed to be listed," the regulator said.

The draft placement memorandum shall contain disclosures as specified in InvIT regulations and a due diligence certificate in the prescribed format also needs to be submitted by the merchant banker.

Placement memorandum is a document through which private placement of units of the InvIT is made.

"The merchant banker to the issue, shall ensure that all comments are suitably incorporated in the draft placement memorandum prior to filing of the placement memorandum," Sebi said.

The board may issue observations on the draft placement memorandum within a time frame specified by Sebi.

Sebi revamps advisory committee on Investor Education and Protection Fund

Market regulator Sebi has revamped its advisory committee that provides suggestions on issues related to investor education and protection activities.

The eight-member committee on Investor Protection and Education Fund (IPEF) is headed by Abraham Koshy, former professor of IIM-Ahmedabad, according to information available with the Securities and Exchange Board of India (Sebi).

The panel is mandated to recommend investor education and protection activities that may be undertaken directly by the market regulator or any other agency for utilisation of IPEF.

Other members of the panel include -- N L Bhatia, President Emeritus, Investor Education and Welfare Association; A Balasubramanian, MD and CEO at Aditya Birla Sun Life AMC; M G Parameswaran, founder of brand-building.com, Ramesh Narayan, founder of Canco.

The committee also comprises three Sebi officials -- executive directors Nagendraa Parakh and V S Sundaresan -- and chief general manager N Hariharan In 2013, the regulator had set up a committee to find out ways and means to best utilise the investor protection and education fund.

Sebi working on norms for related-party transactions, says Ajay Tyagi

The capital markets watchdog Sebi is looking at improving the norms governing related-party transactions for companies, according to the chairman.

In the comments that come weeks after the latest Infosys episode, Sebi chairman Ajay Tyagi on Wednesday said it is "impossible" for the regulator to list out what can be "material" information which it should be mandated to share.

Some listed companies, especially due to their family-driven nature, have been found to be wanting on the related-party transactions.

"Sebi is looking at improving the existing norms on related-party transactions," Tyagi said at an OECD seminar on corporate governance organised by the Sebi.

He explained the increasing prevalence and use of group companies has brought several governance issues to the fore, especially on related party transactions.

"Use of complicated group structures and complex related-party transactions increase the concern on siphoning of funds, money laundering, round tripping etc, while such structures and transactions happen at a cross-country level, the lack of free information flow hinders monitoring and enforcement as well," he said.

Tyagi said Sebi has given its inputs on regulations as a case study on the subject to the OECD and affirmed further support on the same.

Meanwhile, amid the probe into the latest Infosys whistleblower case that came to light early this month, and without mentioning naiming any company, he said its impossible to decide what is material information and therefore, it is better to leave to companies to decide on the same.

But he said lack of disclosures is a "very serious issue" and overlooking any aspect can erode investor wealth.

He also cited the independence of independent directors, especially in companies that are promoter-driven as a regulatory concern.

He said compliance to the corporate governance should be on a principled basis and not merely from a "tick-mark" perspective where a company only looks at mandated requirements.

Protection of minority shareholders' rights is a crucial element for the regulator, but the minority shareholders shouldn't abuse the rights vested under the statutes, Tyagi appealed.

He also said further growth of capital markets is essential given the country's growth needs and exhorted the industry to do all it can.

Sebi ban on Karvy over client fund misuse unnerves India's retail investors

A ban by India's market regulator on Karvy Stock Broking from taking on new clients and executing trades for allegedly misusing client securities has unnerved the country's retail investors.

The Securities and Exchange Board of India (SEBI) barred Karvy on Friday after a preliminary investigation by the National Stock Exchange (NSE) showed the brokerage pledged and sold some of its client securities to raise funds for its own use, without client authorisation and in violation of new rules.

Karvy said in a statement over the weekend that there was no "mis-utilisation" of client securities.

Some investors are considering a move to big, bank-owned brokerages even if they cost more, according to three financial advisers, bucking a recent trend towards discount brokers.

"Worried clients have been calling me and I've told them they may shift if they are more comfortable with a bigger brokerage," said SR Srinivasan of financial planning firm SriNivesh Advisors, although he said that out of the handful that have called none had yet shifted.

NSE had been investigating trades at Karvy following several complaints by investors who said the brokerage was not granting fund transfer requests.

SEBI in June announced a ban on brokers pledging their clients' securities to banks or non-banking financial companies to raise funds.

A total of close to 20 billion rupees ($278.67 million) is at stake, according to SEBI, including about 10.96 billion rupees transferred by Karvy to its group company Karvy Realty Pvt Ltd.

The Karvy Group serves 70 million individual investors and provides investment advice to more than 600 companies, according to its website.

"A lot of people are also worried about their associations with other businesses of Karvy," Vishal Dhawan, founder of Plan Ahead Wealth Advisors said. "Investors may consider temporarily shifting from low-cost brokerages to bank-owned ones."

In its statement, Karvy said that SEBI's order only prevents it from adding new clients and that it had yet stated its position to the regulator.

Karvy did, however, say that while it had started unwinding pledged shares following SEBI's June directive it had not finished the process.

"The whole issue is of outstanding payment to around 150-180 clients of the brokerage," Karvy Group's Chairman C Parthasarathy told the Hindu BusinessLine daily, adding that about 250-300 million rupees due to clients would be cleared in less than a fortnight.

SAT pulls up Sebi for 'shabby' handling of complaints from investor

The Securities and Appellate Tribunal (SAT) has hauled up the Securities and Exchange Board of India (Sebi) for giving computer-generated response to investor complaints filed on its online platform Scores and for disposing of the matter without settling the case.

“We find the approach adopted by Sebi to be a strange one. Such computer-generated disposal of a serious complaint speaks volumes on the conduct in treating the minority shareholders in this shabby manner,” the tribunal said while delivering a judgment on a matter related to an investor complaint.

It said that disposal of the complaints by the markets regulator was merely an eyewash.

Scores is an online platform designed to help investors lodge their complaints pertaining to the securities market. All complaints received by Sebi against listed companies and market intermediaries are dealt with through this mechanism.

The tribunal observed that complaints were filed six years ago against 16 listed entities, including the registered intermediaries, but were disposed of by the regulator without settling the case.

“It seems that the respondents have lost sight of the mandate provided to them under Section 11 of the Sebi Act which mandates it to safeguard the interest of the investors. Disposal of the complaint in this manner in the instant case indicates non-application of mind and non-consideration of the interest of the investors,” SAT said in an order.

“We have no hesitation in stating that the Sebi as a regulator in the instant case has not performed its duties and has kept the complaint pending for more than six years which speaks volumes by itself.”

It added the “tribunal fails to fathom as to why the complaint could not have been decided unless Sebi officials had a vested interest in not deciding the matter”.

The matter pertains to a complaint filed in 2013 by minority public shareholders of three companies — Bharat Nidhi (BNL), PNB Finance and Camac Commercial — for non-disclosure of promoter shareholding of BNL and also the violation of minimum public shareholding requirement by BNL.

BNL, PNBF and Camac hold 24.41 per cent, 9.29 per cent and 13.3 per cent shares, respectively, in Bennett, Coleman & Co (BCCL). The contention of the complainant was that the three companies are owned and controlled by Vineet Jain, Samir Jain and their family members, who are the managing directors of BCCL.

Replying to this, Sebi said the information submitted by the appellants would be analysed and investigation would be made in a holistic manner but, on the other hand, it would neither confirm nor deny the existence of any investigation conducted by them.

Later, the regulator disposed of the case and said the information provided by the complainants would be taken as market intelligence and would also be treated as confidential.

SAT questioned the response and asked why would the complaint be treated as market intelligence or confidential.

The tribunal on Thursday set aside the Sebi order and allowed the appeal by the complainants. It also directed the regulator to “consider and decide the matter by a reasoned and speaking order within six weeks from the date of presentation along with the appellate order”.

Ask Almighty or Nilekani: Sebi chief on God can't change numbers remark

Sebi chief Ajay Tyagi on Friday said a probe is on into the Infosys matter and quipped one needs to ask either Nandan Nilekani or God on the IT major chairman's assertion that even God can't change the company's numbers.

Under fire in the wake of whistleblower complaints about alleged accounting lapses at the country's second largest software exporter, Nilekani had said processes at the company are so strong that even God cannot change the numbers.

"You have to ask him or you can ask God," Tyagi told reporters when asked about his view on Nilekani's comments.

Speaking on the sidelines of an event organised by industry body CII here, Tyagi said Sebi is probing the matter and that he has nothing to say on the allegations at present.

"Investors should draw their own conclusions. Whatever we have to do, we are doing. Whatever is the outcome you would know," Tyagi noted.

On Wednesday, Nilekani asserted that the company operates with the highest integrity, and that "even God can't change the numbers of this company".

When asked whether any information has been shared with American regulator SEC since Infosys is also listed in the US, Tyagi declined to elaborate saying it is a confidential correspondence between two regulators.

Meanwhile, Tyagi said there is a need for increasing the flow of issues in the market and that compliance with minimum shareholding norms by state-run entities would be of help.

According to him, 45 of the 91 listed government-controlled entities are not meeting the requirement to have a free float of 25 per cent.

"Such companies actually need to come forward and increase the visibility in the market and this is something which can be done and I think it should be done and we have conveyed this to the government also," the Sebi chairman said.

Further, Tyagi said that not many companies are coming forward to list despite getting approvals from the regulator.

While noting that issues worth over Rs 25 lakh crore are pending, Tyagi said, "after a year the IPO approvals lapse. And I am talking about which are still valid not have not yet hit the market".

Tyagi also hinted that a lot of bias is towards the banking side and asserted that Sebi is also an important institution which is 27 years old now.

Trust, faith and transparency and disclosures are needed for all the financial sector participants to succeed, he added.

Further, the Sebi chief said the regulator is looking at concerns around companies not sharing data with credit rating agencies and assured to go into the issue after reports that a third of companies being non-cooperative emerged out.

Sebi would also be "quickly" coming out with a circular on allowing preferential allotments to Infrastructure Investment Trusts (InVITs).

Tyagi advocated for greater reliance on public private partnerships for infrastructure investments, stating that in the last five years, over 70 per cent of the money funnelled into the sector has been done by the government.

He also underlined the need for expediting credit enhancement fund announced in the Budget to help stressed shadow banks at the earliest.

Sebi tightens norms to deal with abrupt resignations of auditors

The Securities and Exchange Board of India (Sebi) on Friday tightened the rules around resignations of auditors from listed companies.

The market regulator has said that an auditor will have to provide review — limited or complete audit report — for the quarter during which it resigns. For instance, if the auditor decides to resign in August 2019, it will have to issue the review for the quarter ended September 30, 2019.

Similarly, if the auditor signs the audit report for all the quarters of a financial year, except the last quarter, then it will have to finalise the audit report for the entire financial year. Sebi has said if the listed company or its material subsidiary does not provide the required information, the auditor shall provide an appropriate disclaimer in the audit report.

Further, the regulator has said if the management of a listed or its material subsidiary hampers the audit process, the auditor should approach the chairman of the audit committee of the company.

The audit committee then has to discuss the matter and communicate its views to the management and the auditor. The regulator has also prescribed a format for obtaining information from auditor upon resignation. This includes detailed reasons for resignation and information requested but wasn’t provided.

Sebi’s latest circular on resignation of statutory auditors comes following a spike in auditors at listed firms in recent years. According to data provided by NSE Infobase, the year 2018 saw mid-term cessations of 48 auditors and another 16 so far this year. In the past, Sebi has fumed over the growing instances of abrupt resignation, particularly the when the auditor cites “pre-occupation” as the reason.

“Resignation of an auditor of a listed entity / its material subsidiary before completion of the audit of the financial results for the year due to reasons such as pre-occupation may seriously hamper investor confidence and deny them access to reliable information for taking timely investment decisions,” said Sebi in a circular. Most of the guidelines issued by Sebi are from a discussion paper it had floated in July.

New guidelines

All listed entities and material subsidiaries told to ensure that an auditor issues the audit report, if he or she is tendering resignation, within 45 days from the end of a quarter

Those resigning after 45 days from the end of a quarter have to issue audit reports for the quarter concerned as well as the successive quarter

Auditors who have signed the limited review or audit report for the first three quarters will need to issue the audit report for the last quarter as well as for the complete financial year before resignation

Those rendered disqualified as per the provisions of the Companies Act will not be required to comply with the directions

Sebi chief questions Budget plan for transfer of surplus funds to govt

Securities and Exchange Board of India (Sebi) Chairman Ajay Tyagi has written to the finance ministry, seeking a review of the Budget proposal that mandates transferring 75 per cent of the market regulator's surplus funds to the central government, it is learnt.

In a letter to the ministry on July 10, Tyagi said the proposed move, part of the Finance Bill, 2019, would affect the functioning of Sebi as well as the securities market. He said the proposal was already being discussed by the Financial Stability and Development Council (FSDC), regulator for the financial sector, and that the amendment to the Sebi Act, through the Finance Bill, could have waited until the Council's final decision. Tyagi argued on the rationale for the regulator keeping a reserve fund and its importance in protecting the interests of investors.

The move has also been opposed by the Sebi Employees Association (SEA), brokers' forum, and many other market participants, saying it potentially amounts to an infringement of the independence of the regulatory body.

An e-mail sent to Sebi did not elicit a response. A text message to Tyagi remained unanswered.

The Sebi chairman is learnt to have met Finance Minister Nirmala Sitharaman earlier this week on the issue.

“Two provisions — one related to the surplus transfer and the other related to seeking prior approval from the finance ministry for raising expenses — haven’t gone down well with the markets regulator. The provision is under review,” said an official, requesting anonymity.

Another argument from Sebi's side is that the new provision is like an additional tax.

“Sebi levies fees on intermediaries for rendering services but the move to transfer funds would become an additional tax on market participants,” said another person aware of the development.

Sebi’s general reserve was estimated at Rs 3,500 crore as of March 2018 and Rs 3,800 crore in March 2019, according to sources.

The Finance Bill proposes a 75 per cent cash transfer from the Sebi’s general fund to the government’s books, after creating a ‘reserve fund’ of the annual surplus. The transfer is proposed to take place after Sebi incurs all expenses mandated under the law establishing it.

Going by the provisions, Sebi might have to transfer around Rs 2,800 crore to the central government in the current financial year.

Finance ministry sources said the Department of Economic Affairs’ (DEA's) idea behind the move was to “address the issue of accumulation of huge surplus funds” with Sebi. The DEA had checked with the law ministry, which felt the funds received by Sebi “are public money and all public money received on behalf of the government would be part of the public account”.

Sources said it had been a long-pending demand of the government to transfer surplus funds to the public account; Sebi had not agreed. In the past six months, the DEA had apparently held several rounds of discussions with Sebi on this, without succeeding.