SEBI calls for stringent laws against erring auditors, valuers

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SEBI has proposed giving the board of directors of the company the authority to take appropriate action after conducting an investigation against the individual or firm that violates any regulations or submits a false certificate or report.

India’s capital market regulator has proposed amendments to tighten laws governing auditors and other third-party individuals hired by listed companies for auditing financial results, among other things.

The Kotak Committee, formed to come up with proposals for improving corporate governance, last year recommended that the Securities and Exchange Board of India (SEBI) should have clear powers to act against auditors and other third-party individuals or firms with statutory duties under the securities law.

Auditing lapses have caused several frauds to go unnoticed for years and the capital market regulator has had no direct control on the auditing firms.

SEBI has proposed giving the board of directors of the company the authority to take appropriate action after conducting an investigation against the individual or firm that violates any regulations or submits a false certificate or report.

The proposed changes come months after Punjab National Bank, India’s second largest state-run lender, stunned markets after uncovering a $2 billion loan fraud that had gone undetected for years.

Merchant bankers, credit rating agencies, custodians, among others, are registered and regulated by SEBI but chartered accountants, company secretaries, valuers and monitoring agencies do not come under any direct regulators.

The amendments would mean auditors must ensure certificates or reports issued by them are true in all material respects and they must exercise all due care, skill and diligence with respect to all processes involved in issuance of the report or certificate.

The auditors would be responsible to report in writing to the audit committee of the listed company or the compliance officer on any violation of the securities law they noticed.

In January, SEBI barred Price Waterhouse from auditing listed companies in India for two years after an investigation into a nearly decade-old accounting fraud case in a software services company that became India’s biggest corporate scandal.

SEBI has sought feedback and comments on the draft regulations over the next 30 days.

 

Link: Business Today

SEBI tweaks rules for IPOs, buybacks and takeovers

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The Securities and Exchange Board of India (Sebi) on Thursday eased several rules relating to Initial Public Offers (IPO), rights issues, buybacks and takeovers. The regulator’s board approved these changes as also those relating tenures of managing directors of market intermediaries. The capital markets watchdog reduced the time for announcing the price band of initial […]
The Securities and Exchange Board of India (Sebi) on Thursday eased several rules relating to Initial Public Offers (IPO), rights issues, buybacks and takeovers.

The regulator’s board approved these changes as also those relating tenures of managing directors of market intermediaries. The capital markets watchdog reduced the time for announcing the price band of initial public offers (IPO) from five working days before the opening of the issue to two working days. This will give companies more time to fix the price band.

 

Companies now need to provide investors with financial disclosures — for public issues and rights issues — for only three years. Currently, information is provided in the offer documents for five years. Also, companies need to provide only consolidated audited financial disclosures in the IPO offer document; audited standalone financials of the issuer and subsidiaries must be disclosed on the company website.

 

Following a board meeting on Thursday, the capital markets regulator tweaked the buyback norms. The buyback period has been defined as the time between the board resolution or the date of declaration of results for a special resolution authorizing the buyback of shares and the day on which the shares are paid.

Also, Sebi has amended the takeover rules. It has given companies additional time to revise the open offer price upwards till one working day before the start the tendering period.

 

The Sebi board also approved some recommendations of R Gandhi committee on regulations relating to market infrastructure institutions (MIIs). For rights issues the threshold for submission of the draft letter of offer to Sebi has been increased to Rs.10 crore as against the earlier prescribed Rs 50 lakh. The regular also tweaked the rules relating to the underwriting of all non-SME public issues. If 90% of the fresh issue of share is subscribed, the underwriting will be restricted to that portion only. Accordingly, the requirement to underwrite 100% of the issue without regard to the minimum subscription requirements has been deleted.

 

Sebi also reduced minimum anchor investor size to Rs 2 crore from the existing Rs 10 crore, for SME issuances. This will allow companies to attract more anchor investors for an issue.

 

The board has permitted eligible domestic and foreign entities to hold up to 15% shareholding in case of Depository and Clearing Corporation. Moreover, multilateral and bilateral financial institutions, as notified by the government, have also been recommended to hold up to 15% in an MII. Moreover, Sebi has decided to limit the tenure of managing directors of an MII for a for a maximum of two terms of up to 5 years each or up to 65 years of age, whichever is earlier. The requirement would also apply to incumbent MDs of MIIs.

 

The regulator is also looking into the issues regarding IPO ICICI Securities in ICIC AMC bought the large stake.The regulator had sought details of a significant investment made by ICICI Prudential Mutual Fund in the IPO of ICICI Securities. “Yes we are looking into that, and we have sought some information from them, and we are yet to get their replies,” Tyagi said.

 

Source: Financial Express

SEBI panel proposes stricter norms for RTAs

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SEBI proposed that the board of RTA should have public interest directors when it becomes a QRTA.

A Securities and Exchange Board of India (Sebi) panel on Friday proposed tighter ownership and governance norms for registrar and transfer agents (RTAs).

According to a discussion paper released by Sebi, the panel, headed by former Reserve Bank of India (RBI) deputy governor R. Gandhi, felt that since RTAs manage sensitive investor-related data, there need to be stricter governance rules for them.

RTAs maintain detailed records of all investor transactions in mutual funds and shares. They also help investors complete their transactions and receive a record of their account statements.

This is the second discussion paper by the panel after some market participants suggested it should add credit rating agencies (CRAs), RTAs and debenture trustees (DTs) in the list of market infrastructure institutions (MIIs) and frame stricter norms for them, similar to those followed by MIIs such as exchanges, depositories and clearing corporations.

The panel, however, felt RTAs, CRAs and debenture trustees need not be categorized as MIIs but suggested that RTAs should have tighter norms.

In September 2017, Sebi had defined qualified RTAs (QRTAs) as “RTAs servicing more than 20 million folios”. The Sebi panel felt that once an RTA becomes a QRTA, enhanced ownership norms should be applied to them.

In India, there are only two RTAs (Karvy Computershare Pvt. Ltd. and Computer Age Management Services Pvt. Ltd.) which service 90% of the mutual fund folios. Karvy has around 40% market share in corporate folios.

The Sebi panel said QRTAs should either have a dispersed ownership or be owned by regulated entities or entities in the business of RTA.

While regulated entities can be allowed to hold 100% in RTAs, unregulated entities should not be allowed to hold more than 49% collectively and 15% individually in RTAs, the panel said. If the QRTA is an in-house entity or one that performs the function exclusively for one entity only, such ownership norms may not be required, the paper said. However, when an RTA becomes a QRTA, it may be given five years to achieve the proposed ownership structure, said the Sebi panel.

Sebi proposed that the board of RTA should have public interest directors (PIDs) when it becomes a QRTA.

“If the chairperson is a non-executive director, the QRTA shall have at least one-third of the board of directors as PIDs; and where the QRTA does not have a regular non-executive chairperson, it shall have at least half of the board of directors as PIDs,” according to the Sebi panel.

With regard to CRAs, the panel said since Sebi has already put in place tighter norms for CRAs, they need not be categorized as MIIs and be subjected to further stringency.

However, the panel proposed that the so-called “Appeal Committee” in CRAs should be renamed as ‘Review Committee’, as the word appeal has a legal connotation to it. Further, the review committee of CRAs should have independent members, the Sebi panel said.

On DTs, which act as intermediaries between the issuer of debentures and the holders of debentures, the Sebi panel said there are already quite a few challenges before them in performing their obligations and that the function of DTs is still evolving. “Therefore, the committee is of the view that the review of ownership and governance of DTs is not the immediate priority.”

Source: Live Mint

SEBI puts in place new framework to check non-compliance of listing rules

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Sebi has put in place a stronger mechanism to check non-compliance of listing conditions, wherein exchanges will have powers to freeze promoter shareholding and even delist the shares of such defaulting companies.

The move is aimed at maintaining consistency and adopting a uniform approach in the matter of levy of fines for non-compliance with certain provisions of the listing regulations.

Under the new framework, exchanges would have the power to freeze the entire shareholding of the promoter and promoter group in non-compliant listed entity also holding in other securities, the Securities and Exchange Board of India (Sebi) said in a circular.

Besides, exchanges can levy fines on non-compliant company, move the stocks of such firms to restricted trading category and suspend trading in the shares of such entities.

Further, in case an entity fails to comply with the requirements or pay the applicable fine within six months from the date of suspension, the exchange will need to initiate the process of compulsory delisting.

The new rules would come into force with effect from compliance periods ending on or after September 30, 2018.

Grounds for suspension from listing include failure to comply with the board composition including appointment of women director and failure to constitute audit committee for two consecutive quarters; failure to submit information on the reconciliation of shares and capital audit report for two consecutive quarters.

According to new rules, Sebi has asked stock exchanges to impose penalties ranging from Rs 1,000-5,000 per day on violation of certain clauses of the listing agreement like non-submission or delay in submission of document related to the company’s financial and shareholding details, failure to appoint women director on the board.

Besides, the exchanges can levy a fine of Rs 10,000 per instance for delay in furnishing prior intimation about the company’s board meeting and delay in non-disclosure of record date or dividend declaration.

Such fines will continue to accrue till the time of rectification of the non-compliance to the satisfaction of the concerned recognized stock exchange or till the scrip of the listed entity is suspended from trading for non-compliance with the provisions of Listing Regulations.

Such accrual will be irrespective of any other disciplinary or enforcement action initiated by stock exchanges or Sebi.

Further, if a non-complaint entity is listed on more than one exchanges, the concerned bourses need to take uniform action in consultation with each other.

The board of directors need to be informed about the non-compliance and their comments need be made public so that investors can make informed decisions.

The exchanges would have to disclose on their websites the action taken against the listed entities for non-compliance of the listing conditions, including the details of respective including the details of respective requirement, amount of fine, period of suspension, freezing of shares, among others.

Every bourse is required to review the compliance status of the listed entities within 15 days from the date of receipt of information. Also, exchanges need to issue notices to the non-compliant listed entities to ensure compliance and pay fine within 15 days from the date of the notice.

If any non-compliant listed entity fails to pay the fine despite receipt of the notice, the exchange will initiate appropriate enforcement action including prosecution.

If the non-compliant listed entity complies with the Sebi’s requirement and pays applicable fine within three months from the date of suspension, the exchange will have to revoke the suspension of trading of its shares after seven days of such compliance and trading would be permitted only in ‘trade to trade’ basis for a week from revocation.

Source: Times of India

SEBI READIES P-NOTE FRAMEWORK FOR GIFT CITY

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Market regulator Sebi is readying a framework for issuance of participatory notes (p-notes) from international financial services centres such as GIFT City. It is in talks with FPIs, which act as issuers of p-notes, sources said. The move comes at a time when Indian bourses have terminated licensing of indices and data-feed agreements with their foreign counterparts. This will force overseas investors to either invest directly or come through GIFT City to trade in Indian securities.

The Securities and Exchange Board of India (Sebi) is readying a framework for issuance of participatory notes (p-notes) from the international financial services centres (IFSCs) such as GIFT City. P-notes are derivative instruments that allow overseas investors to invest in a domestic security without having to directly register with Sebi. The market regulator is in talks with foreign portfolio investors (FPIs), which act as issuers of P-notes, according to sources.

The move comes at a time when Indian bourses, including the National Stock Exchange (NSE), have terminated licensing of indices and data-feed agreements with their foreign counterparts.

The snapping of ties will force overseas investors, which use platforms like the Singapore Exchange (SGX) to trade in Indian securities, to either invest directly or come through GIFT City.

GIFT City is designed like an offshore trading platform with low transaction cost. Know-your-customer (KYC) documentation for p-notes issued from the IFSC would have to adhere to anti-money laundering laws, sources privy to the development said. The regulator, however, is expected to do away with strict trading restrictions on these instruments.

At present, no p-note subscriber is allowed to take a derivatives position in

■ Sebi to soon come up with a framework for issuance of p-notes from IFSC, Gujarat

■ The KYC documentation for p-notes from IFSC is likely to be on parwith p-notes issued by on-shore FPIs

■ However, Sebi is expected to relax the trading restrictions on p-notes issued from IFSC

■ On-shore subscribers of pnotes are not allowed to take any position in the Indian derivatives market

■ Indian stock exchanges recently terminated

the market for any other purpose apart from hedging. Also, there are restrictions on transfer of p-notes from one investor to another. According to experts, since the IFSC is a typical offshore destination where only derivatives are traded, Sebi is open to a less-stringent licensing of indices and data-feed agreements with foreign bourses

■ FPIs looking to invest in India can either invest directly or through the IFSC GIFT City, which offers tax benefits and liabilities

“Sebi recently conducted a meeting with some of the big FPIs that had sought the regulator’s permission to issue p-notes from the IFSC. The idea was to provide an entry to those investors who had lost trading opportunity due to the closing of offshore derivatives trading platforms like the SGX,” said another source privy to the development.

There was still a huge appetite among global funds for instruments such as p-notes because these did not amount to direct exposure, experts said. Despite the high KYC requirement, pnotes are still handy for investors that do not want to have a direct exposure to the Indian market due to restrictive laws in their own countries. P-notes also offer a cost advantage for funds that invest a marginal amount of their portfolio in Indian securities.

“The initial rules for p-note issuance from the IFSC could be much simpler with fewer restrictions on issuers since the whole concept was at an evolutionary stage. Once the instruments gain traction, the regulators concerned could consider tightening rules further,” said Tejesh Chitlangi, partner, IC Legal Universal.

The share of p-notes in total FPI investment has gone down significantly in the last decade with Indian regulators cracking down on their misuse. A decade ago, p-notes accounted for half of total FPI inflows. Now they just account for just 3.7 per cent.

Sebi in 2016 tightened KYC norms for p-notes. P-note issuers were asked to follow Indian anti-money laundering rules. Sebi also made it mandatory for FPIs to disclose the end beneficiary of Pnote subscribers.

Source: Press Reader

Investment in participatory notes hits 6-month high of Rs.1.5 lakh cr in December

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According to SEBI data, the total value of P-note investments in Indian markets – equity, debt, and derivatives – increased to ₹1,52,243 crore at December-end from ₹1,28,639 crore at the end of November.

Investments in domestic capital markets through participatory notes (P-notes) surged to a six-month high of over ₹1.5 lakh crore at December-end despite stringent norms put in place by regulator SEBI to check their misuse.

P-notes are issued by registered foreign portfolio investors to overseas investors who wish to be part of Indian stock markets without registering themselves directly. They, however, need to go through a proper due diligence process.

According to SEBI data, the total value of P-note investments in Indian markets – equity, debt, and derivatives – increased to ₹1,52,243 crore at December-end from ₹1,28,639 crore at the end of November.

This is the highest level since June when the cumulative value of such investments stood at ₹1.65 lakh crore.

Of the total investments in November, P-note holdings in equities were at ₹1.2 lakh crore and the remaining in debt and derivatives markets.

Besides, the quantum of FPI investments via P-notes surged to 4.6% during the period under review from 4% in the preceding month.

Prior to the recent surge, P-note investments were on a decline since June and hit an over eight-year low in September. However, these investments slightly rose in October but fell in November.

These declines could be attributed to several measures taken by markets regulator Sebi to stop the misuse of the controversy-ridden participatory notes.

In July, SEBI notified stricter P-notes norms stipulating a fee of $1,000 that would be levied on each instrument to check any misuse for channelising black money.

Also, SEBI prohibited FPIs from issuing such notes where the underlying asset is a derivative, except those which are used for hedging purposes.

The move was a follow-through of the SEBI board’s approval of a relevant proposal in June. These measures were an outcome of a slew of other steps taken by the regulator in the recent past.

In April, SEBI had barred resident Indians, NRIs and entities owned by them from making the investment through P- notes.

The decision was part of efforts to strengthen the regulatory framework for P-notes, which have been long seen as being possibly misused for routing black money from abroad.

Here’s why India has decided to crank up its crackdown against Bitcoins

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I-T department issues notices to 4 lakh high networth individuals across the country who were trading in bitcoins on exchanges

Here’s why India has decided to crank up its crackdown against Bitcoins

The rising craze for bitcoin, a cryptocurrency that has rocketed to shocking highs, has come under the government’s lens. Bitcoin can be an easy way to evade tax or snare unsuspecting small investors in ponzi schemes. The government has begun a crackdown on illegal uses of this unregulated virtual currency.

Widening its probe into bitcoin investments and trade, the Income Tax (IT) department is set to issue notices to 4 to 5 lakh high networth individuals (HNI) across the country who were trading on the exchanges of this unregulated virtual currency, the PTI reported.

The move comes after the IT department conducted survey operations last week at major bitcoin exchanges across the country on suspicion of alleged tax evasion. These operations were undertaken for gathering evidence for establishing the identity of investors and traders, the transaction undertaken by them, identity of counter-parties and related bank accounts.Earlier this month, there was a spurt in the value of bitcoin. It rose from under $10,000 at the start of the year to close to $20,000, before a sharp 20 per cent plunge within hours.

In addition to financial risks—the value of bitcoins has seen huge falls within hours—the regulators are worried about their use for illicit and illegal activities, subjecting the users to an unintentional breach of laws against money laundering and terror finance.Concerns also emanate from some unscrupulous entities indulging in illicit money-pooling activities—commonly known as ponzi schemes—with the promise of huge returns from investment in bitcoins and other variants, which they claim are minted through blockchain, a distributed ledger technology that was created to mint bitcoins and comprises of extremely complex algorithms with several thousand nodes for each chain.

There is a suspicion that some so-called cryptocurrencies and bitcoin investments may actually have nothing to do with any blockchain-developed virtual currency and are just new ways devised by scamsters to ride the wave and what they may be offering could be ‘e-ponzi’ schemes.

The financial regulators are worried that a complete lack of regulatory regime for such cryptocurrencies may give rise to ‘e-ponzi’ schemes.

The financial sector watchdogs, including RBI and Sebi, as also various government agencies, will soon get into a huddle to prepare a framework to safeguard the gullible investors and to clamp down on the fraudsters who may try to manipulate the regulatory gaps, PTI reported, quoting a senior official.

There are quite a few proposals on the table and those include applying to cryptocurrencies the existing regulations aimed at checking the spread of ponzi schemes or illicit money-pooling activities, money laundering and black money generation and circulation, another official said.

The jury is still out on whether such virtual currencies should be allowed as legal payment tender or investments, though there are also suggestions from some quarters for allowing them with necessary checks and balances.