SEBI Unveils Major Reforms to Enhance Market Accessibility and Investor Protection

On Friday, the Securities and Exchange Board of India (SEBI) announced a series of significant reforms aimed at enhancing market accessibility and investor protection. These changes, unveiled during SEBI’s 211th board meeting, mark a pivotal moment in the evolution of India’s capital markets. Chairman Tuhin Kanta Pandey, who has been at the helm since March, led the discussions that resulted in these transformative measures.

1) Relaxation of Minimum Public Offer and Shareholding Requirements

One of the most notable reforms is the relaxation of norms related to the Minimum Public Offer (MPO) and the timeline for meeting Minimum Public Shareholding (MPS) requirements. Previously, issuers with a post-issue market capitalization exceeding ₹1,00,000 crore were mandated to offer a minimum of ₹5,000 crore and at least 5% of their post-issue market cap to the public. This change aims to facilitate a smoother IPO process and encourage more companies to tap into public markets.

2) Enhanced Access for Foreign Portfolio Investors (FPIs)

In a bid to attract foreign investment, SEBI approved a single-window clearance system for FPIs. This streamlined approach will simplify the process for foreign investors looking to access Indian markets, thereby fostering greater international participation in the Indian capital markets.

3) Expansion of IPO Anchor Book

To broaden the pool of long-term institutional investors in IPOs, SEBI amended the ICDR Regulations. The regulator has extended anchor investor participation beyond domestic mutual funds and increased the overall reservation for the anchor portion from one-third to 40%. This move is expected to enhance the stability and depth of the IPO market.

4) Granting Equity Status to REITs

In a landmark decision, SEBI has reclassified Real Estate Investment Trusts (REITs) as equity instruments. This change is anticipated to boost mutual fund participation in REITs, thereby increasing liquidity and investment opportunities in the real estate sector. Meanwhile, Infrastructure Investment Trusts (InvITs) will retain their ‘hybrid’ classification for mutual fund investments.

5) Reduction of Exit Load for Mutual Funds

To enhance investor protection and improve transparency, SEBI has reduced the maximum permissible exit load for mutual funds from 5% to 3%. This change aims to make mutual fund investments more attractive and accessible to a broader range of investors, as most schemes currently charge between 1% and 2% as exit load.

6) Amendments to Related Party Transactions

SEBI has approved amendments to norms governing Related Party Transactions (RPTs). These changes introduce scale-based thresholds based on the annual consolidated turnover of listed entities to determine material RPTs. Additionally, revised thresholds for approval by the Audit Committee and simplified disclosure requirements for smaller RPTs will enhance transparency and governance.

7) Introduction of AI-Only AIF Schemes

A new category of Alternative Investment Funds (AIFs) has been introduced, limited exclusively to Accredited Investors (AI-only schemes). This initiative offers specific regulatory flexibilities, reducing compliance burdens while enhancing investor protection. Existing eligible AIF schemes can opt into this classification, allowing them to benefit from the associated advantages.

8) Launch of ‘India Market Access’ Website

To facilitate better access for FPIs, SEBI has launched the ‘India Market Access’ website. This dedicated platform aims to address the challenges FPIs face in navigating India’s regulatory landscape, providing a centralized source of information and resources to streamline compliance processes.

9) Strengthening Regulatory Outreach

To enhance its regulatory outreach, SEBI plans to establish local offices in major state capitals and cities across India. This initiative aims to better serve the growing investor base and improve accessibility to regulatory services. The first phase will see offices set up in cities like Chandigarh, Jaipur, and Bengaluru.

10) Review of Market Infrastructure Institutions (MII)

SEBI has approved key measures to enhance the governance of Market Infrastructure Institutions, such as stock exchanges and clearing corporations. Two Executive Directors will now be appointed to oversee critical operations and regulatory compliance, ensuring robust governance and risk management frameworks.

These reforms reflect SEBI’s commitment to fostering a more inclusive and transparent capital market environment. By easing regulations and enhancing accessibility for both domestic and foreign investors, SEBI aims to stimulate growth and innovation in India’s financial landscape. As these changes take effect, the market is poised for a new era of investment opportunities and increased participation from a diverse range of investors.