SEBI inagurates the publishing of agenda papers

Earlier on December 4, 2008, SEBI Board in its meeting had decided that the agenda papers submitted to the Board on all policy issues will be made available in the public domain by putting them up on the SEBI website after the Board has taken a decision on the issue. The reason for this decision was "to bring transparency in the working of the Board". On December 15, 2008 SEBI published the first ever such agenda paper and this agenda paper corresponds to the SEBI Board meeting held on December 4, 2008.
I have gone through the items on agenda but some of the items were already published in newspapers and websites. All these articles in media had the tag "sources disclosed that SEBI is mooting the idea of_______". For example, Economic Times on December 15, 2008 carried a news item "SEBI finalises exit policy for regional stock exchanges" and it stated that this was discussed in Board meeting. This news was published before SEBI officially published the agenda in its website. The publication of agenda papers by SEBI can to an extend limit the media speculation about SEBI decisions.

Some of the interesting information avaialable on the agenda are as follows:-
On December 4, 2006 SEBI Primary Market Advisory Committee (PMAC)discuused the issue of IPO grading and have taken the view that it is too early to form a conclusive view about effectiveness of the present policy of “mandatory IPO grading” and therefore, the status quo may be maintained in this regard.
PMAC has however taken note of certain issues, in this regard, like the following. (i) “ Performance matrix” for credit rating agencies, which may bring intended discipline amongst credit rating agencies doing grading. (ii) Need for surveillance on grades as is done in case of credit ratings etc. These issues would be further deliberated in the ensuing meetings of PMAC.

SEBI issues guidelines for closed ended schemes (mutual funds) to be launched on or after December 12, 2008.

SEBI vide its Circular SEBI/IMD/CIR No. 12/147132/08 dated December 11, 2008 has reviewed provisions related to closed ended and has come out with certain guidelines to be followed by closed ended schemes (except Equity Linked Savings Schemes) to be launched on or after December 12, 2008. The details are as follows:

1. SEBI made it mandatory for all units to be listed. This will provide an exist route for unit holders since SEBI had last week banned early exit in Close Ended Scheme.
2. SEBI clarified that listing fees shall be a permissible expense to be charged under Regulation 52(4).
3. Trustees shall ensure that before launch of the scheme the in-principle approval for listing has been obtained from the stock exchange(s) and appropriate disclosures are made in the Scheme Information Document.
4. SEBI clarified that NAV should be computed and published on daily basis. This will definitely provide an indication of the value of underlying assets and will help in price discovery, as the units are traded on stock exchange.
This circular comes on the heels of the decisions taken by SEBI board on December 4, 2008 (these decisions were discussed here).
SEBI has also stated that the concerned regulations would be amended later.

Amended DIP guidelines now available for download

SEBI has made available DIP guidelines (amended up to December 8, 2008) for download in its website www.sebi.gov.in. 

Amendments to SEBI (DIP) Guidelines - Now listed companies can offer Non-Convertible Debentures (NCDs) with warrants

SEBI has amended SEBI (DIP) Guidelines vide its circular dated December 8, 2008. The amendments are made in “Guidelines for Qualified Institutions Placement (QIP)”. It enables a listed company to make a combined offering of Non-Convertible Debentures (NCDs) with warrants. Qualified Institutional Buyers (QIBs) can subscribe to the combined offering of NCDs with warrants or to the individual instruments, i.e., either NCDs or warrants.
Usually, a holder of NCD with equity warrants is given an option to buy a specific number of shares from the company at a predetermined price within a definite time-frame.
The amended clause reads as follows: -
“13A.1.1 This Chapter shall apply to any issue of equity shares / fully convertible debentures (FCDs) / partly convertible debentures (PCDs) (/ nonconvertible debentures (NCDs) with warrants or any securities (other than warrants)), which are convertible into or exchangeable with equity shares at a later date (hereinafter referred to as “specified securities”), made to Qualified Institutional Buyers (QIBs) pursuant to this chapter, by a listed company which fulfills the following conditions:”
Full text of the circular is available in www.sebi.gov.in.

Maintenance of Security Deposit by Companies offering securities

Clause 42 of the Listing Agreement requires that every company proposing to issue new securities should deposit before the stock exchange, an amount calculated at the rate of 1% of the amount of securities offered for subscription. This should be done before the opening of subscription list. 50 per cent of the amount can be in cash and the rest as bank guarantees. The objective is to ensure compliance with all legal requirements of issue. This deposit can be released by the concerned stock exchange only after obtaining a ‘NOC’ from SEBI.
The regulator found out that the bank guarantees so kept with the stock exchanges have expired and they have not taken steps to revive the bank guarantees so expired. This resulted in the compromise “of an important mechanism available for redressal of investor grievances”.
In this context the regulator on 5th December, 2008 has asked stock exchanges to comply with the directions listed below: -
• To recoup any shortfall caused by expiry of bank guarantee.
• To have a system in place, to track bank guarantees furnished by companies.
• To invoke such bank guarantees before it expires, if any issuer company fails to satisfy the shortfall in the deposit.

Summary of the SEBI (PROHIBITION OF INSIDER TRADING) (AMENDMENT) REGULATIONS, 2008

The changes brought out by the SECURITIES AND EXCHANGE BOARD OF INDIA (PROHIBITION OF INSIDER TRADING) (AMENDMENT) REGULATIONS, 2008 are as follows: -



“Insider” definition has been changed and its scope is widened. Now any person who has received or has had access to such unpublished price sensitive information will be considered to be an “Insider”. It is not necessary that he should be a connected person (subject to interpretation).


The “code of internal procedures and conduct” framed by the intermediary should not only be as near thereto the Model Code specified in Schedule I of these Regulations but it should also: -
· be without diluting it in any manner and

· the concerned intermediary should ensure the compliance of the same.



Any person who holds more than 5% shares or voting rights in any listed company shall disclose to the company, the number of shares or voting rights held by such person, on becoming such holder, within 2 working days of:-
· the receipt of intimation of allotment of shares; or

· the acquisition of shares or voting rights, as the case may be.

Earlier the time limit was 4 working days.



Any person who is a director or officer of a listed company shall disclose to the company in Form B the number of shares or voting rights held and positions taken in derivatives by such person and his dependents (as defined by the company), within two working days of becoming a director or officer of the company.
Earlier it was not necessary to disclose the positions taken by such persons in derivatives and the time limit was 4 working days.



Any person who is a director or officer of a listed company, shall disclose to the company and the stock exchange where the securities are listed in Form D, the total number of shares or voting rights held and change in shareholding or voting rights, if there has been a change in such holdings of such person and his dependents (as defined by the company) from the last disclosure made under sub-regulation (2) or under this sub-regulation, and the change exceeds Rs. 5 lakh in value or 25,000 shares or 1% of total shareholding or voting rights, whichever is lower.
Earlier the person was not under an obligation to disclose the shares of his dependant.



In Regulations 13 (5) and (6) the time limit prescribed for submission of the documents has been reduced to 2 working days.
Earlier the time limit was 4 and 5 days respectively.



A new provision for filing disclosures, required under regulation 13, through ‘electronic filing system devised by the stock exchange’ has also been inserted.
A person who violates regulation 11 he shall be liable for appropriate action under Sections 11, 11B, 11D, Chapter VIA and Section 24 of the Act.
Earlier the action was limited to 11, 11B and 24 of the Regulation.



In the model code (for listed companies): - All directors/officers /designated employees of the company and their dependents who intend to deal in the securities of the company (above a minimum threshold limit to be decided by the company) should pre-clear the transactions as per the pre-dealing procedure.
Earlier the dependents were not included. ‘Dependents’ have to be defined by the company.



In the model code (for listed companies): - All directors/officers /designated employees and their dependents shall execute their order in respect of securities of the company within one week after the approval of pre-clearance is given.
Earlier the dependents were not included. ‘Dependents’ have to be defined by the company.



In the model code (for listed companies): - All directors/ officers/ designated employees who buy or sell any number of shares of the company shall not enter into an opposite transaction i.e. sell or buy any number of shares during the next six months following the prior transaction. All directors/ officers/ designated employees shall also not take positions in derivative transactions in the shares of the company at any time. In the case of subscription in the primary market (initial public offers), the above mentioned entities shall hold their investments for a minimum period of 30 days. The holding period would commence when the securities are actually allotted.
Earlier there was no restriction entering into an opposite transaction in six months. There was also no restriction for taking derivative positions. The only restriction that existed was that the security should be held for a minimum period of 30 days.

SEBI Board meeting held on December 4, 2008

IPO and Rights Issues

(a) SEBI issues an "observation letter" for all offer
documents submitted by Cos proposing to hit Capital Market.
Earlier, the validity of the letter was 3 mths. In view
of the current market situtation SEBI has extended this validity to 1 YEAR.

(b) Entitlements in a Rights issue will now be made in
electronic mode (i.e. by way of a credit in the demat
accout) and these can be traded on exchanges. Further
the facility of ASBA (blocking of funds in the account of
the applicant till the allotment is finalised) has also
been extended to Rights issues

Mutual Funds - Following was decided

(a) No early exit will be allowed in any Close Ended
Scheme.
(b) Close ended schemes to be listed on Exchanges (to
provide exit route to investors)
(c) Maturity of the underlying assets not to go beyond
the date the scheme expires.
(d) Schemes approved earlier but not launched to be
amended accordingly


Other decisions

(a) SEBI to have a code to avoid conflict of interest
for the members of the Board
(b) Agenda and Minutes of SEBI Board meetings to be made
public (thru website)

Cross margining facility extended to all categories of market partcipants

SEBI vide its circular SEBI/DNPD/Cir- 44 /2008 dated Dec 2nd, 2008 has decided to revise the existing facility of cross margining and to extend it across cash and derivatives segments to all categories of market participants.

This is to improve the efficiency of the margin capital’s use by market participants.
Cross margining benefit shall be computed at client level on an online real time basis. For institutional investors, however, the cross margining benefit shall be provided after confirmation of trades.
The positions of clients in both the cash and derivatives segments, to the extent they offset each other, shall be considered for the purpose of cross margining.