Sebi plans to introduce these key initiatives in the current fiscal year

The Securities and Exchange Board of India (Sebi), which is the watchdog for India’s capital markets, is busy. If the statements made in the annual report for 2022-23 are anything to go by, then the regulator is set to announce a slew of initiatives in the current financial year. 

On the agenda are many important issues related to primary and secondary markets, mutual funds, market infrastructure intermediaries (stock exchanges, clearing corporations, depositories), and the regulatory framework for delisting, takeovers, and suspicious trading activities among other things. 

“SEBI would continue harnessing the power of consultation and cutting-edge technologies to bolster the accessibility, resilience, and security of the securities market for investor protection going forward,” stated the Sebi annual report for the year 2022-23. 

“Further, SEBI would carry forward its efforts to strike a fine balance between the regulation and development of markets," it added. 

Here are the key things planned in FY24

Harmonisation of disclosure requirements under LODR and ICDR: Any entity wanting to go public must make disclosures in line with Issue of Capital and Disclosure Requirements (ICDR) and once listed, must comply with Listing Obligations and Disclosure Requirement (LODR). Sebi plans to harmonise disclosures made for the purpose of public offers and continuous disclosure requirements. 

Conglomerate Disclosures: Listed entities are subject to many disclosure requirements that are not applicable for unlisted companies. Conglomerates typically have a mix of listed and unlisted companies. SEBI plans to facilitate transparency around the conglomerate by enhancing the group-level reporting of transactions, including details of cross-holding and material financial transactions within the conglomerate. 

Pricing mechanism in case of delisting: Sebi plans to review the pricing mechanism for delisting especially the reverse book building process while exploring other alternatives to determine exit price in case of voluntary delisting. Sebi also plans to review the compulsory delisting framework adopted by the stock exchanges. 

Instantaneous Settlement: Instant settlement has been grabbing headlines in the recent past ever since Sebi chairperson Madhabi Puri Buch said that the regulator is actively working towards it. As per the annual report, a working group has been constituted to examine the feasibility and if found feasible, recommend operational modalities for implementation of the instant settlement cycle. 

Review of eligibility criteria of stock derivatives: The way stocks are selected to be included in the derivative segment has always been a subject of debate. The last review of the eligibility criteria for the introduction of stocks in derivatives was done in 2018. The market dynamics have changed significantly since then and hence Sebi plans to review the eligibility criteria for introduction and continuation of stocks in the derivatives segment. 

Price band formulation for scrips in the equity derivatives segment: Stocks in the F&O segment have dynamic price bands both for underlying stocks and the derivative contracts. These price bands can be changed subject to certain conditions. To strengthen volatility management and minimise information asymmetry for such stocks and contracts in the equity derivatives segment, Sebi is in the process of strengthening the existing framework of price bands for such stocks and their derivatives contracts. The proposed framework would limit the impact of possible price risk arising out of sudden extreme market volatility, fat finger error or issues with systems of a trading member, stated the annual report. 

Introduction of the mutual fund lite regulations: Sebi is planning to introduce mutual fund regulations specifically aimed at passive funds since investment decisions are not discretionary but tied to changes in the underlying benchmark index. Sebi believes that the new regulations will significantly reduce the compliance requirements of such funds while fostering innovation in the passive fund ecosystem. 

Increasing transparency of portfolio managers including performance benchmarking: Sebi has already laid down rules for performance benchmarking and valuation norms for portfolio managers along with norms for prudential limits for related party investments. Now, Sebi is exploring standardisation of disclosures by portfolio managers. 

Review of the definition of unpublished price sensitive information (UPSI): According to Sebi, the current definition of UPSI places the responsibility of categorising information as UPSI on the listed entities, with an expectation that they will exercise prudence while categorising information as UPSI. Sebi has, however, observed that, many a times, an information/event that should have been categorised as UPSI was not done so. Hence, it is reviewing the definition of UPSI to ensure that the process of categorisation of information as UPSI by listed companies is uniform and is also aligned with the disclosure requirements under the SEBI (LODR) Regulations. 

Regulatory framework for dealing with unexplained suspicious trading activities: Sebi, while dealing with the matters related to contravention of the provisions of the securities laws, particularly relating to manipulative and unfair trade practices, insider trading, front running, pump, and dump activity, etc., faces challenges in finding direct evidence in respect of communication of non-public price sensitive information.

In such cases, where the trading pattern clearly appears to be repeatedly suspicious, investors would be required to explain such trading activities. Like the provision in the Income Tax Act on ‘unexplained credits’, Sebi would seek to consider provisions for ‘unexplained suspicious trading patterns'.