Key highlights of the board meeting of Securities Exchange Board of India (SEBI) held on December 20, 2022 indicate that under its new leadership the regulator is waking up to the risks posed by the digital ecosystem and the dire need to enhance accountability of key management personnel of critical institutions. The main focus of the SEBI board meeting seemed to be about measures to enhance accountability of people within the system, and assessment of risks, regulatory changes to protect investors, promote fair-play, and enhance ease of doing business.
Focus on Market Infrastructure Institutions (MIIs) and their conduct
It seems that the public fiasco of former NSE CEO, Chitra Ramakrishna proved to be the tipping point for the regulator to realise that it needs to emphasise more on the fiduciary responsibilities of Market Infrastructure Institutions (MIIs) like stock-exchanges, clearing corporations, and depositories.
A sharper code of conduct will be applicable to the MII, the governing board, directors, Key Management Personnel (KMPs), and committee members. Also, the board members and KMPs will be held accountable if they are aware of wrongdoing(s) and fail to report the same.
One of the major decisions of the SEBI board was to direct the MIIs to allocate more resources towards critical operations, regulatory, compliance and risk management, and investor grievance redressal rather than any other function, including business development.
Stipulations for the unregulated
One of the much needed initiatives now taken by the board is to bring the providers of "execution only services" under the ambit of regulations. A number of entities including Investment Advisers (IAs) and stock brokers, offer execution services in direct plans of MF schemes, through digital mode but there is no regulatory framework available to manage their rights and duties. The regulatory framework for "Execution Only Platforms" (EOP) for direct plans of mutual fund schemes aims to implement appropriate investor protection mechanisms and mandate appropriate regulatory compliance required for the EOP activity.
There are no stipulations with respect to the duration for which a public issue of debt securities or non-convertible redeemable preference shares (NCRPS), should be kept open. With a view to address any possible inefficiencies and delays due to such lack of regulatory mandate, the board has decided that the public issue of debt securities and NCRPS shall be kept open for subscription for a minimum period of three working days and maximum period of ten working days.
Enhanced focus on identifying and mitigating risks
Risk assessment and risk handling seems to be one of the biggest agenda that the board discussed, while paying individual attention to the different kinds of entities that fall under the purview of SEBI. With respect to the MIIs, SEBI has provisioned that every MII should appoint a chief risk officer for assessment and handling of risks associated with the institution.
In case of stock exchanges, the regulator has mandated that stock exchanges shall introduce an Investor Risk Reduction Access Platform for which SEBI will issue a detailed framework through a circular. The Investor Risk Reduction Access Platform is expected to be available from the third quarter of FY 2023-24, as per the regulator.
For stock brokers who handle a very large number of clients, very large amount of client funds, and very large trading volumes the board approved amendments to the SEBI (Stock Brokers) Regulations, 1992 will be identified as Qualified Stock Brokers (QSBs). The QSBs would need to comply with enhanced risk management practices and requirements. SEBI has also decided to enhance monitoring of such QSBs by SEBI / Market Infrastructure Institutions (MIIs).
To ensure that adoption of new technology by the ecosystem happens in a pragmatic manner with awareness of the risks involved, the Board has approved a framework for adoption of Cloud services by SEBI regulated entities. The framework is expected to assist these entities in leveraging benefits of cloud computing as well as developing a new approach to deal with various issues related to cloud services such as safeguarding of sensitive information, country risk, disaster recovery, concentration risk, etc.
Ease of doing business and promoting fair-play
SEBI seems to be especially sensitive towards facilitating investors to do business by providing a less complicated and a more level playing field to all cohorts of investors.
To streamline the on-boarding process and reduce the time taken for registration of Foreign Portfolio Investors (FPIs), the board approved amendments in the SEBI (Foreign Portfolio Investors) Regulations, 2019 for providing clarity on the various timelines given in regulations.
While amendments to the SEBI (Buy-back of Securities) Regulations, 2018 include buy-back through stock exchange route to be phased out in a gradual manner and streamlining the process of buy-back, and create a level playing field for investors, in case of buyback through tender offer route. SEBI has decided to make it mandatory to place the relevant advertisements/documents with respect to buyback, such as, copy of the public announcement, letter of offer etc. in the respective website of the stock exchange(s), merchant banker and the company for better dissemination of information to shareholders.
To protect the interests of debenture holders, the board has decided to mandate that the issuers of listed debt securities shall incorporate suitable provisions in their Articles of Association, to cast obligation on the board of directors of the issuer to appoint the person nominated by its debenture trustee (DT) as a director in the event of default. The full extent of the provisions to this effect are made in the Amendment to SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (NCS Regulations).
