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Regulatory | 26 June 2013

SEBI Comes Up With Some More Financial Market Rules

by Paritosh Gajjar
 
@Paritosh

As the stock markets move south, the rupee plunges and the precious metal gold’s price moves downward, financial market regulator SEBI tried to infuse some positivity through some rule changes for FIIs, company buybacks and the debt market. Also not to forget, there is something for the angel investors too in the kitty.

First the FIIs. SEBI has streamlined the categories of foreign investors and eased the entry norms. Sub Accounts, QFIs and such entities will now come under Foreign Portfolio Investors (FPIs) and would need to abide by the rule of investing 10% by any single investor or group as ‘portfolio investment’. Investments beyond that number would be counted as FDI.

The regulator also has done away with the current practice of FIIs and their sub-accounts requiring a prior direct registration to operate in Indian markets.

Moving on to buybacks, SEBI has tried to be stricter to the companies by tightening the norms. It states that 50% of the earmarked funds for a buyback have to be utilized by the corporate as against the existing stipulation of 25%. Failing this, the amount in the escrow account will be forfeited, subject to a maximum of 2.5% of the total amount earmarked.

The debt markets have also got some backing as SEBI eased the entry norms for market entities and waived off the deposit and annual fee for those already registered for other segments.

A distinct and probably an effective move was seen when SEBI gave recognition to angel investors and brought them under the ambit of its

Alternative Investment Funds (AIF) regulations. They are now included in the definition of venture capital funds. Stipulations stated are:

  • Individual angel investors will need to have early-stage investment expertise or have experience as a serial entrepreneur or be a senior management professional with 10 years’ experience
  • They also need to have net tangible assets of at least R2 Cr
  • Corporate angel investors need to have net worth of R10 Cr or be a registered AIF or venture capital fund
  • Angel funds also need to have a corpus of at least R10 Cr and the minimum investment by an investor would be R25 lacs, compared with R1 Cr for other AIFs

Industry players have in the VC space have given a thumbs-up to these new proposed rules but with certain critical feedback.

SEBI has also enabled listing of start-ups and small enterprises on the institutional trading platform without having to make an initial public offering.

While these moves are certainly aimed at improving the operations of the capital market as a whole, one waits to see how much effective do these prove to be and whether some or all of them are timely infusion of regulation changes.

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