SEBI’s 19 Decisions: A New Era for SMEs, REITs, and Market Regulations
On a significant Wednesday, the board of the Securities and Exchange Board of India (SEBI) convened to deliberate on a series of pivotal decisions aimed at enhancing the regulatory framework for various sectors within the Indian financial market. The board approved 19 key measures, focusing on tighter listing regulations for small and medium enterprises (SMEs), streamlined norms for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), and an expanded definition of unpublished price-sensitive information (UPSI). These changes are poised to reshape the landscape of capital markets in India, fostering transparency and investor confidence.
Tighter Listing Regulations for SMEs
One of the standout decisions was the introduction of stricter listing regulations for SMEs. In a bid to combat manipulation and ensure that SMEs present a true picture to potential investors, SEBI has mandated that companies must demonstrate an operating profit of at least Rs 1 crore in two out of three financial years prior to listing. This requirement aims to filter out companies that may not have sustainable business models.
Additionally, the board approved a phased release of promoter lock-in periods over one to two years. Specifically, 50% of the promoters’ holdings exceeding the minimum promoter contribution (MPC) will be released after one year, with the remaining 50% released after two years. This gradual approach is designed to instill greater confidence among investors by ensuring that promoters remain committed to their companies post-listing.
Moreover, the offer for sale (OFS) limit has been capped at 20% of the total issue size, while the amount allocated for general corporate purposes is restricted to 15%. These measures are intended to ensure that funds raised through public offerings are utilized effectively and transparently.
Enhanced Regulations for REITs and InvITs
In a move to simplify the operational landscape for REITs and InvITs, SEBI has introduced easier norms that are expected to attract more investments into these sectors. The adjustments are part of SEBI’s broader strategy to enhance the ease of doing business in India, particularly in the real estate and infrastructure sectors, which are vital for economic growth.
Expanding the Definition of UPSI
Another significant decision was the expansion of the definition of unpublished price-sensitive information (UPSI). SEBI has approved the inclusion of 17 new items that were previously not covered, broadening the scope of what constitutes material events. This includes critical aspects such as restructuring plans, proposed fundraising activities, agreements affecting management control, evidence of company fraud, one-time bank settlements, and changes in key managerial personnel (KMP). By expanding the UPSI definition, SEBI aims to enhance market integrity and protect investors from potential insider trading.
Strengthening Merchant Banking and Custodian Regulations
SEBI also took steps to strengthen the regulatory framework governing merchant bankers and custodians. The net worth requirement for merchant bankers has been increased to Rs 50 crore, with those having a net worth of Rs 10 crore barred from handling mainboard IPOs. This move is designed to ensure that only financially robust entities are involved in significant capital market activities.
Custodians, too, will face heightened standards, with a new net worth requirement of Rs 75 crore to be met within three years. These changes reflect SEBI’s commitment to maintaining high standards of professionalism and accountability in the financial services sector.
New Performance Validation Agency
In a noteworthy initiative, SEBI has approved the establishment of a performance validation agency, the Past Risk and Return Verification Agency (PaRRVA). This agency is expected to enhance the credibility of performance claims made by investment products, thereby fostering greater trust among investors.
Conclusion
The decisions made by SEBI on Wednesday mark a significant step forward in enhancing the regulatory framework for SMEs, REITs, and InvITs, while also tightening the rules governing merchant bankers and custodians. By implementing these measures, SEBI aims to create a more transparent, accountable, and investor-friendly market environment. As the Indian financial landscape continues to evolve, these changes are likely to play a crucial role in fostering sustainable growth and attracting both domestic and international investors.