The Securities and Exchange Board of India (SEBI) has tightened the norms for credit rating agencies (CRAs) and mutual funds (MFs) to reduce instances of conflict of interest. It also allowed complete integration of stock and commodity exchanges to enable both asset classes to be available for trading on a single platform.
Net worth norms
The SEBI board, which met on Thursday, increased the net worth requirement for rating agencies to ₹25 crore from the current ₹5 crore. It also decided that the promoter entity would have to maintain at least 25% stake in the rating agency for a period of three years.
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CRAs have also been barred from holding more than 10% in a peer rating agency. SEBI also said that CRAs would have to segregate their non-core activities into a separate legal entity to avoid any conflict of interest. “CRAs shall segregate their activities, other than the rating of financial instruments and economic/ financial research, to a separate legal entity.” In the case of MFs, SEBI said a sponsor of a particular MF cannot hold more than 10% in any other MF entity. This assumes significance especially for UTI Mutual Fund, which has State Bank of India, Bank of Baroda, LIC and Punjab National Bank as shareholders. All the four entities have their own respective asset management companies.
While the SEBI statement said that “any existing non-conformity with the aforesaid requirements may be aligned within a reasonable time”, SEBI Chairman Ajay Tyagi said such entities would be given a year to resolve shareholding issues.
Among other important decisions, SEBI gave its nod for existing bourses to introduce equity or commodity trading facilities as they deem fit. In other words, BSE and NSE can now unveil commodity trading while Multi Commodity Exchange (MCX) and National Commodity and Derivatives Exchange (NCDEX) can start offering equity trading facilities.
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The integration, however, would come into effect from October 1, 2018. “… to permit trading of commodity derivatives and other segments of securities market on single exchange, the board approved the proposal to remove the restrictions by making suitable amendments to Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporation) Regulations, 2012. The amendments to the SECC Regulations would be effective from October 1, 2018,” said the statement.
“BSE believes this decision will help participants in various markets a highly regulated, safer, more transparent trading, clearing and settlement framework when implemented fully. BSE has geared up itself for long to provide these facilities,” said Ashishkumar Chauhan, MD and CEO, BSE.
The regulator has also relaxed certain regulatory norms for easing investments by foreign portfolio investors (FPIs) and facilitating growth of Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs).