Here is a gist of some of the key decisions taken at the SEBI board meet.
1) Framework for Gold Exchange and Vault Managers
In a significant move meant to create a robust and transparent secondary market for spot gold, the following decisions were taken by SEBI.
- The Gold Exchange will provide a platform for trading, clearing and settlement of trades in gold. Existing stock exchanges, under the current umbrella, can set up gold exchanges.
- Gold will be traded on the exchange through Electronic Gold Receipts (EGRs). Since gold is a perpetual asset, the EGRs will also have perpetual validity.
- The EGRs will be two-way fungible in the sense that gold can be converted into EGRs, just as the EGRs can be surrendered for gold.
- SEBI will authorize the creation of Vault Managers with a minimum net worth of Rs50cr providing vaulting service for gold deposited against EGRs.
- The Vault Manager will be responsible for taking gold deposits, safekeeping of gold, issuing EGRs against gold and reconciling physical gold with EGRs periodically.
- It will create a secondary market for standardized spot gold and enable much better price discovery in a transparent and market driven manner.
2) Removing anomalies in delisting and open offer process
The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 has certain anomalies, which SEBI has sought to correct. Currently, if the open offer takes the holding to above 75% or above 90%, then the acquirer is first required to bring down this holding to 75%, the basic minimum public shareholding stipulated. This can be unwieldy.
SEBI has now decided that if the acquirer is serious about delisting the target company, then the acquirer must suggest a suitable premium for delisting over and above the open offer price. The existing 90% tendering requirement does become tad rigid, as we saw in the case of the failed Vedanta delisting. SEBI has sought to give 1 year time frame if the company has crossed 75% but failed to mop up 90%. The delisting price must eventually be the same for all shareholders. This will give more leeway for acquirers.
Superior Voting Rights and Social Stock Exchange
These two important announcements were made by SEBI in its recent board meeting. The superior voting rights (SR) shares are currently permitted in high-technology industries. However, some of the provisions are rigid. SEBI has made 2 changes. Currently, SR shares can only be issued to investors with a net worth of under Rs500cr. That has now been enhanced to Rs1,000cr. Also, the minimum time gap between issue of SR and filing of RHP has been reduced to 3 months from 6 months.
Social enterprises will be allowed to raise funds through the social stock exchange, which will be created as a separate segment of existing stock exchanges. This facility will only be available to entities with social intent and social impact as their primary goals; with 15 broad categories defined. Social Enterprises can raise funds via Zero Coupon Zero Principal (ZCCP) bonds, mutual funds and social impact funds. The current Social Venture Fund will be rechristened as Social Impact Funds.
Amendments to Related Party Transactions
The relationship and the transactions between the listed entities, its subsidiaries and the promoter group has been a bone of contention for long. In its board meeting, SEBI expanded the definition of related parties to make it more encompassing. The related party will include all persons and entities forming part of promoter group, irrespective of shareholding. Any individual or entity with beneficial interest of 20% till Mar-23 and 10% from Apr-23 will also be classified as related parties.
Apart from taking shareholder approval for related party transactions, the approval of audit committee will also be required for such transactions on a periodic basis. Such transactions will also have to be reported to the stock exchanges every 6 months.
Broadening the definition of “Fit and Proper” person
One of the key criteria for intermediaries and participants in the financial markets is that such persons / entities must be “Fit and Proper”. However, the definition has been a matter of discretion and open to interpretation. Now, SEBI has provided greater clarity.
The definition of “Fit and Proper” person shall be rule-based. In other words, the said intermediary should have the competence in terms of capabilities, skills, financial soundness, manpower, infrastructure; which will be the hard aspects of Fit and Proper person. In addition, the rule-based approach shall also incorporate soft aspects like integrity honesty, ethical behaviour and fairness as essential attributes.
The rule-based criteria will also include a negative list, which will outline disqualifications like order of conviction by court, moral turpitude, insolvency, wilful default, fugitive economic offender etc.