The Securities and Exchange Board of India (SEBI) plans to introduce new corporate governance norms as proposed by the Kotak Committee, in a phased manner for listed entities, with only the bigger companies required to comply in the initial phase as opposed to all the listed companies.
The board of the capital market regulator, which is scheduled to meet on March 28, will discuss the committee’s proposals before giving it the go-ahead for implementation for listed companies.
“The aim is to implement the new norms with minimum disruption and so the top 200 or 500 companies would be initially mandated to comply with the new rules,” said a person familiar with the development.
“There are proposals that, if implemented for the complete market at one go, would create genuine hurdles and so the view is that a phased implementation would work better,” he added.
He declined to be identified as the proposals were yet to be approved.
The 23-member committee under the chairmanship of Uday Kotak had submitted its 177-page report to SEBI in October.
Among other things, the panel proposed that audit committees should monitor the flow of funds to unlisted subsidiaries, including those established overseas, and that listed entities should put in place proper regulatory framework while sharing unpublished price-sensitive information with promoters or any other significant shareholders.
The committee also proposed that listed companies should be required to have at least six directors on the board with a minimum of 50% representation of independent directors, including one woman director.
“Effecting a change in a phased manner ensures that the change is not disruptive and the experience gained in the first phase helps to iron out issues, if any, in the complete roll-out,” said J.N. Gupta, managing director, Stakeholders Empowerment Services (SES), a proxy advisory firm.
Compliance conditions
Meanwhile, the board of the regulator, which has representation from the government and the Reserve Bank of India (RBI), will also review the compliance requirements for investors wanting to trade in the derivatives market. This is part of the regulator’s attempts to ensure that only well-informed investors with the required risk appetite trade in derivatives.
According to the person quoted above, the regulator is likely to make it compulsory for brokers to insist on the net worth certificates of investors who want to trade in the derivatives segment beyond a certain threshold limit, so as to ensure that the exposure is well within the risk taking capacities of the individual.
Incidentally, the market regulator had released a discussion paper in July last year for the ‘growth and development of equity derivative market in India’, which, among other things, highlighted the rapid growth in the derivatives turnover over the years, along with the kind of participants trading in the segment.
An e-mail query sent to SEBI seeking comments on the board meet remained unanswered till the time of going to press.
