The Securities and Exchange Board of India (SEBI) is concerned over instances of promoters and key management personnel getting benefits from private equity funds without the approval of shareholders.
The SEBI board, which met here, has decided to release a consultation paper on the issue to invite public comments on the changes required in the regulations to stem this practice.
“We came across an instance... if the price goes up beyond a certain level then the managing director would be given an incentive.... it was like a private benefit in a listed company. That we plan to attack,” said SEBI chairman U.K. Sinha, on the sidelines of a press conference to announce the decisions taken by the board.
“We are concerned about such kind of agreements. We will come out with a discussion paper soon." “When such reward agreements are executed without prior approval of shareholders, it could potentially lead to unfair practices,” according to a SEBI statement. The consultation paper would look at amendments like adding a new provision that would require disclosures and prior shareholders’ approval and if in case there is an existing profit-sharing agreement then the same should be disclosed on stock exchanges for public dissemination.
Permanent registrationAmong other decisions, the SEBI board decided to grant permanent registration to all categories of market intermediaries - merchant bankers, credit rating agencies, registrar, research analysts, to aid 'ease of doing business.' Earlier only stock brokers and sub brokers were eligible for permanent registration. For registration of market intermediaries, the regulator has a two-step process. Initially, registration is given for a three to five years before giving the permanent one.
The decision to provide permanent registration to the 11 categories of market intermediaries has been taken by the board after taking into account the regulator’s strict supervisory mechanism that is in place. Stock brokers and sub-brokers are granted permanent registration provided they comply with applicable rules and regulations, fit and proper criteria, redresses investor grievances and have required capital adequacy, among other requirements.
The capital market regulator has also decide to amend some of its regulations to align with the amendments made by the government. For instance, SEBI regulations have been amended to increase the limit of foreign institutional investors from 5 per cent to 15 per cent in stock exchanges.
Bond marketThe regulator has also allowed Category I and II foreign portfolio investors (FPIs) to directly access corporate bond market without going through a broker. This brings them on par with domestic institutions like banks, insurance companies and pension funds.
Under the norms approved by the board, an existing SEBI-registered Portfolio Manager will also be allowed to act as eligible fund manager with prior intimation from SEBI and subject to certain conditions. The market regulator has also put in place a procedure for registration of an existing foreign-based fund manager desirous of relocating to India, or as a fresh applicant.
REIT amendmentsThe SEBI board has also approved certain amendments to the regulations concerning Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvIT). The regulator also plans to have a wide consultation on the issue of high frequency trading on which a consultation paper was issued in August. The Chairman, however, said the comments received to the paper appear sponsored and SEBI will not be bowed down by such comments. “Those are all sponsored comments. We plan to have a detailed open consultation. SEBI has an open mind. We will consult everyone.” he said.
