Security Exchange Board of India
KEY AREAS OF LITIGATION:
- Investor Complaints
- Attachment of Bank Accounts and Demat Accounts
- Release Orders
- Remittance Advice
- Recovery Proceedings
- Corporate Restructuring
INFORMED INVESTOR IS A PROTECTED INVESTOR
The Landscape of the Capital Markets has changed beyond measure. The Indian Capital Market has grown at a frenetic pace and has played a significant role in providing the long term resources for economic growth and development. There has been a rapid growth on all key parameters like market capitalization, resources raised from primary market, fund mobilization by mutual funds and investment by foreign portfolio investors.
In the wake of phenomenal growth in capital market over the last two decades, a regulatory system which would inspire confidence of investor is paramount. SEBI has played a vital role in healthy and orderly development of the securities markets and adequate investor protection. SEBI endeavours to provide a regulatory framework which facilitates an efficient mobilization and allocation of resources through the securities market. In accomplishing these objectives, SEBI is responsive to the needs of three groups which basically constitute the market: The investors, The issuers of Securities and The market intermediaries. SEBI is an active and a leading member of the International Organization of Securities Commission (IOSCO). The IOSCO has issued has issued a set of 30 principles of securities regulation, which are based upon three objectives of securities regulation- the protection of investors, ensuring that markets are fair, efficient and transparent and the reduction of systemic risk.
RELEVANT ACTS UNDER SEBI:
SECURITIES APPELLATE TRIBUNAL
Securities Appellate Tribunal is a statutory body established under the the Securities and Exchange Board of India Act, 1992 to hear and dispose of appeals against orders passed by the Securities and Exchange Board of India or by an adjudicating officer under the Act; and to exercise jurisdiction, powers and authority conferred on the Tribunal by or under this Act or any other law for the time being in force.
- Appeals against orders passed by the Securities and Exchange Board of India or by an adjudicating officer under the Act
- Appeals against orders passed by the Pension Fund Regulatory and Development Authority (PFRDA) under the PFRDA Act, 2013
- Appeals against orders passed by the Insurance Regulatory Development Authority of India (IRDAI) under the Insurance Act, 1938, the General Insurance Business (Nationalization) Act, 1972 and the Insurance Regulatory and Development Authority Act, 1999 and the Rules and Regulations framed thereunder.
VARIOUS REGULATIONS ISSUED BY SEBI
The judicial law on SEBI Act and the SEBI Regulations has evolved over the years. There has been a plethora of judicial decisions on the SEBI Act and the Regulations issued thereunder, more particularly on the SEBI Takeover Regulations, the SEBI insider Trading Regulations and SEBI (Fradulent and Unfair Trade Practices). Substantial amendments were made to the SEBI Act, Securities Contracts (Regulation) Act and the Depositories Act by the Securities Laws (Amendment) Act, 2014 to provide for power to call for information from any person, explicit power to disgorge ill-gotten gains and power to credit disgorgement amount to Investor Education and Protection Fund and its utilization, search and seizure power to Investigating Authority, settlement of administrative and civil proceedings, establishment of special courts, and attachment and sale of immovable property of offenders in recovery proceedings against defaulters and discretion to levy minimum penalty.
In the wake of the recommendations of the Sodhi Committee, SEBI (Prohibition of Insider Trading) Regulations, 2015 were notified. The New Regulations restrict insiders from trading in securities when they have access to unpublished price sensitive information, thereby getting an unfair advantage. The regulations provide additional clarification on what constitutes “unpublished price sensitive information” (UPSI) and define the types of information that may be considered price sensitive in the ordinary course of business. Trading in listed securities while in possession of UPSI is forbidden, with the exception of certain circumstances specified in the regulations. Insiders who are likely to hold UPSI throughout the year would be able to develop pre-scheduled trading plans.
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 were notified after due consideration of the recommendations of the Achutan Committee. Substantial acquisition of shares in or takeover of a listed company impacts a host of stakeholders, such as the acquirer, the target company, the management and the public shareholders. It is critical that the legal framework regulating such substantial acquisition of shares and takeovers is precise, unambiguous and predictable, and balances multiple, and at times, conflicting interests of such stakeholders. The present regulations attempt to balance the interests of various stakeholders and provide for a fair, equitable and transparent regime that addresses the concerns of all stakeholders.
SEBI (Issue and Listing of Debt Securities) Regulations, 2008 reflect SEBI’s approach towards making a rationalised and stand-alone regulation for providing an enabling regulatory framework to develop the corporate debt market. The regulations also provide for rationalised disclosure requirements and a reduction of onerous obligations. erstwhile attached to such issues. Modifications have been aimed at reducing time and unnecessary burden of issuance of these securities and according flexibility to issuers to structure their instruments, without diluting areas of regulatory concern. For listed companies, minimal incremental disclosures are mandated since large amount of information is already there in the public domain, whereas for unlisted companies, detailed disclosures are required. Separate sets of regulations have been notified for debt issues by companies, municipal corporations and securitized debt instruments.
SEBI had notified regulations for issue of preference shares and perpetual bonds in 2013. Disclosures and other requirements in offer documents have been specified for issue of structured products/market linked debentures that seek listing on stock exchanges as such securities differ from plain debt securities or debt securities issued with embedded call or put options, that is, by offering market linked returns obtained through exposures on exchange traded derivatives.
SEBI (Share Based Employee Benefits) Regulations, 2014 were notified which cover general employee benefit schemes framed by companies in addition to employee stock option schemes, employee stock purchase schemes and stock appreciation rights schemes. The schemes have also been permitted to acquire shares from the secondary market under certain conditions so as to avoid dilution of capital.
The SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 consolidate and streamline the provisions of existing listing agreements for various segments of the capital market, including equity (including convertibles) issued by entities listed on major stock exchanges, small and medium-sized enterprises listed on the SME exchange and institutional trading platforms, non-convertible debt securities, non-convertible redeemable preference shares, and Indian depository receipts.
The Listing Regulations are divided into two sections:
(a) substantive regulations included in the main body of the Regulations;
(b) procedural requirements included in the Listing Regulations’ schedules.
The Listing Regulations emphasize broad principles (consistent with the IOSCO Objectives and Principles of Securities Regulation) for periodic disclosures by listed entities, as well as corporate governance principles (consistent with the G20/OECD Principles of Corporate Governance), Common Obligations applicable to all Listed Entities, Specific Obligations applicable to specific types of securities, and Stock Exchange Obligations and Actions.
CORPORATE GOVERNANCE INITIATIVES UNDER SEBI
The Corporate governance principles enshrined in the Listing Regulations have been strengthened by aligning the provisions with the Companies Act, 2013, and also prescribing additional conditions in this regard. Principles on corporate governance have been incorporated based on OECD principles. Some of the changes include exclusion of nominee director from the definition of independent director, prohibition of stock options to independent directors, performance evaluation of independent directors by the entire Board of directors, limit on number of directorships for independent directors to seven, definition of ‘related party’ extended to cover persons in control and having significant influence, pre-approval of related party transactions by the audit committee, approval of shareholders for material related party transactions through special resolution with related parties abstaining from voting and mandatory nomination and remuneration committees.
- By amendments, the Offer for Sale mechanism has been made available to the top 200 companies by market capitalisation in any of the last four completed quarters and non-promoter shareholders of eligible companies holding at least 10 percent of the share capital were also allowed to offer shares through the Offer for sale mechanism. Minimum 10 percent of the offer size is to be reserved for retail investors.
- SEBI has been playing a dominant role in ensuring a robust risk management framework across market infrastructure institutions and in introducing policies that strengthen the supervision of market players. SEBI has prescribed norms for the Core Settlement Guarantee Fund (Core SGF), default waterfall and stress testing for enhancing the robustness of the present risk management system in clearing corporations. Comprehensive risk management policy has been introduced for depositories.
- In the derivatives segment, various products are offered such as index futures, index options, stock futures, stock options, interest rate futures, currency futures, bond futures. India VIX, etc. As interest rate futures have become a fundamental risk management tool for financial markets worldwide, on December 5, 2013 SEBI permitted stock exchanges to introduce cash settled interest rate futures on a 10-year Gol security. SEBI also permitted NSE to introduce derivatives on India VIX, which is India’s first volatility index and is a key measure of market expectations of near-term volatility. India VIX indicates investors perceptions of the market’s volatility in the near term.
- SEBI has also undertaken various steps to strengthen and streamline the norms governing commodity derivatives market as well as to on-board stakeholders in the commodity derivatives market to the regulatory framework of the Securities Contracts (Regulation) Act, 1956 to ensure that the commodity derivatives market will be brought at par with the securities market in all aspects technology, new products and participants, regulation/ code of conduct for intermediaries, risk management, regulations, supervision, surveillance, investor protection and the enforcement framework.
- Mutual funds, with assets under management of over Rs. 16 trillion today, play a significant role in the capital market. Recent reforms include tightening exposure limits on investments by mutual funds, requirement for consolidated accounts statement, enhancing scheme related disclosure and internal credit assessment. SEBI has reviewed the valuation norms for money and debt funds and redefined the principles of fair valuation, that is, valuation shall be reflective of the realizable value of the securities/assets. In order to enable investors to take informed decisions, SEBI has continuously increased transparency and disclosure norms of mutual funds. While enabling regulatory frameworks are being put in place continuously, SEBI has also widened the scope of the industry by allowing enhanced participation of larger categories of investors and introducing innovative product-mixes. SEBI has enabled a single consolidated view of all the investments of an investor in mutual funds and securities held in demat form with the depositories.
- SEBI (Foreign Institutional Investors) Regulations have been replaced by the SEBI (Foreign Portfolio Investors) Regulations, 2014 with effect from 1 June 2014. The then existing FIls and QFIs were merged into one category called FPI, simplifying the investment and registration norms for foreign investors. Easier entry norms and an operational framework for foreign entities in the new FPI regime have made the Indian market a more attractive investment destination.
- Based on the recommendations of the Sahoo Committee, Government notified new regulations for global depository receipts in October 2014. In the current scheme, GDRs can be issued only in FATF. IOSCO compliant jurisdictions, both sponsored and unsponsored GDRs can be issued, permission of Government of India is not required for the issue and there are no restrictions on end-use of the funds. Foreign currency convertible bonds continue to be governed by the erstwhile regulations for depository receipts.
- Alternative Investment Funds (AIFs) engage in a series of activities, beginning with the mobilisation of individual savings, either directly or indirectly through institutions such as pension funds, insurance companies, banks, and endowments, and investing them in promising enterprises. They also add strategic value to portfolio companies, monitor investments, and exit with the goal of achieving a reasonable risk-adjusted return. The Alternative Investment Funds Regulations, 2012 govern alternative investment funds.
- SEBI (Real Estate Investment Trusts) Regulations, 2014, and SEBI (Infrastructure Investment Trusts) Regulations, 2014, were notified for providing a framework for registration and regulation of Real Estate Investment Trusts (REIT) and Infrastructure Investment Trusts (InvIT) respectively. REITs/InvITs are mutual fund like institutions that enable investments in the real estate/infrastructure sector by pooling small sums of money from multiple individual investors for directly investing in real estate properties and return a portion of the income (after deducting expenditures) to unit holders of REITs/InvITs who pooled in the money. A REIT in India is allowed to invest mainly in completed and revenue generating assets and other approved investments. Infrastructure Investment Trusts (InvITs) are expected to provide a suitable structure for financing/refinancing of infrastructure projects in the country. InvITs, as an investment vehicle, may aid in providing wider and long-term refinance for existing infrastructure projects, freeing up of current developer capital for reinvestment in new infrastructure projects and Refinancing/takeout of existing high cost debt with long-term low-cost capital and help banks headroom for new funding requirements. Upon review of response to the consultative papers issued, major amendments were made to the above regulations on November 30, 2016.
THE FUTURE COURSE
The agenda for the future include increasing the penetration of securities market, revisiting regulatory framework to enable increased fund raising (both equity and debt) from securities market, enhanced and effective monitoring of regulatory compliances, revisiting the framework for retail distribution, investment advice and curbing mis-selling, migrate to T+1 rolling settlement, continuously review and upgrade accounting standards, disclosures, corporate governance practices in the interest of investors and review and amend the various regulations to bring them in tune with dynamics of market requirements.