The board of the Securities & Exchange Board of India (SEBI) on Saturday approved a regulatory framework for Index Providers with the objective of fostering transparency and accountability in governance and administration of financial benchmarks in the securities market.
“The regulations will provide a framework for registration of Index Providers which license ‘Significant Indices’ that shall be notified by SEBI based on objective criteria,” SEBI chairperson Madhabi Puri Buch said.
The regulatory framework which is in accordance with IOSCO Principles for Financial Benchmarks will now only be applicable to ‘Significant Indices’.
Further, in order to facilitate ease of compliance and to strengthen investor protection in Alternative Investment Funds (AIFs), SEBI stipulated that any fresh investment made by an AIF beyond September 2024 would be held in dematerialised form.
Existing investments made by AIFs have been exempted from the requirement, except in cases where the investee company has been mandated under applicable law to facilitate dematerialisation of its securities; and, investment where the AIF on its own or along with other SEBI-registered intermediaries/entities which are mandated to hold their investment in dematerialised form, has control in the investee company.
Further, the requirement is exempted for investments held by a liquidation schemes of AIFs, schemes of an AIF whose tenure (not including permissible extension of tenure) ends within one year from the date of issuance of necessary notification in this regard; and schemes of an AIF which are in extended tenure as on the date of issuance of the notification.
“The mandate for appointment of custodian, currently applicable to schemes of Category III AIFs and to schemes of Category I and II AIFs with corpus more than ₹500 crore would be extended to all AIFs,” Ms. Buch said at a press conference.
As per the decision, AIFs may now appoint a custodian who is an associate or manager or sponsor of the AIF, subject to conditions similar to those prescribed under SEBI (Mutual Funds) Regulations, 1996 for permitting related party of sponsor of a Mutual Fund to act as its custodian.
The Board also noted that the cost of compliance to the schemes coming under the said mandate was an average of approximately ₹88,000 per annum for availing custodial services, based on analysis of sample data.
The Board also approved amendments to SEBI (Real Estate Investment Trusts) Regulations, 2014 to create a regulatory framework for facilitation of Small & Medium REITs (SM REITs), with an asset value of at least ₹50 crore vis-à-vis minimum asset value of ₹500 crore for existing REITs.
SM REITs will have the ability to create separate scheme(s) for owning real estate assets through special purpose vehicle(s) constituted as companies, Ms. Buch said.
The regulatory framework approved by SEBI for SM REITs provides for the structure of SM REITs, migration of existing structures meeting certain specified criteria, obligations of the investment manager including net worth, experience and minimum unitholding requirement, investment conditions, minimum subscription, distribution norms and valuation of assets.
The board approved flexibility in the framework for Social Stock Exchange (SSE) to provide impetus to fund raising by Not for Profit Organizations (NPOs) on the Social Stock Exchange.
It has approved reduction in minimum issue size in case of public issuance of Zero Coupon Zero Principal Instruments (ZCZP) by NPOs on SSE from ₹1 crore to ₹50 lakh and also reduction in minimum application size in case of public issuance of ZCZP by NPOs on SSE from ₹2 lakh to ₹10,000, thereby enabling wider participation of subscribers including retail.
“The board also approved changing the nomenclature of “Social Auditor” with “Social Impact Assessor” to provide comfort to NPOs and convey a positive approach towards the social sector,” the SEBI chairperson said.