SEBI makes it mandatory to disclose details of shares pledged by the promoters

SEBI vide a press release PR No.58/2009 dated January 21, 2009 has made it mandatory for promoters to disclose details of shares pledged by them.
• It makes it mandatory on the part of promoters (including promoter group) to disclose the details of pledge of shares held by them in listed entities promoted by them.
• Disclosures shall be made as and when the shares are pledged (“event based disclosure”) as well as by way of periodic disclosures.
• Details of pledge of shares and release/ sale of “pledged shares” shall be made to the company and the company shall in turn inform the same to the public through the Stock Exchanges.
• Necessary amendments in the regulations and listing agreement will be made soon.
In the US, SEC mandates the disclosure of shares pledged by directors of a company. In the UK, this is covered under Insider Trading Regulations. The pledging of shares is subject to the same disclosure requirements by insiders as other dealings in shares. The UK definition of insider trading says that ‘dealing’ in shares includes “using as security, or otherwise granting a charge, lien or other encumbrance over the securities of the company”. This unambiguously places pledging (of any form) as being part of insider trading for which disclosure has to be made. Now SEBI has placed Indian regulations at par with the International best practices.

Earlier, the PMAC (Primary Market Advisory Committee) of SEBI had proposed that promoters should make disclosure whenever they raise funds using their holding in listed companies as collateral. SEBI has now accepted this recommendation and the details of these disclosure requirements will be known in few days.

SEBI imposes new restrictions on Mutual Funds

SEBI vide circulars SEBI/IMD/CIR No. 14/151044/09 dated January 19, 2009 and SEBI/IMD/CIR No.13/150975 / 09 dated January 19, 2009 have effected the following changes in Mutual Fund rules.
• An investment made by liquid fund schemes and plans is subject to the following conditions. Earlier definitions are withdrawn.
(1) With effect from February 01, 2009, funds should make investment in /purchase debt and money market securities with maturity of upto182 days only.
(2) With effect from May 01, 2009, funds should make investment in /purchase debt and money market securities with maturity of upto 91 days only.
(3) Inter-scheme transfers of securities having maturity upto 365 days and held in other schemes as on February 01, 2009 shall be permitted till October 31, 2009. From November 1, 2009 the new requirements shall apply to such inter-se scheme transfers also.
• SEBI also discontinued the use of the term “Liquid plus Scheme” as it gives a wrong impression to the investors about an added liquidity. Mutual funds should carry out this change and confirm the compliance to SEBI within 30 days from the date of this circular.
• SEBI prohibited the practice of Mutual Funds offering indicative portfolios and indicative yields in their debt /fixed income products as it may be misleading to investors. This is applicable to any communication in any manner issued by (1) any Mutual Fund or (2) distributors of its products. Compliance shall be monitored by the AMC and Trustees and reported in their respective reports to SEBI.
• Economic times and Business standard.

SEBI issues guidelines in respect of exit option to Regional Stock Exchanges

On December 29, 2008, SEBI has issued guidelines to provide an exit option to such Regional Stock Exchanges (RSEs) whose recognition is withdrawn and/or renewal of recognition is refused by SEBI and RSEs who may want to surrender their recognition.
The highlights of this circular are as follows: -
• In every case, SEBI will pass an order effecting the exit.
• RSEs (or their successor entities) may be permitted to retain movable and immovable assets and to deal with such assets as they deem fit subject to compliance with the conditions prescribed by the SEBI.
Companies which are listed in such de-recognised RSEs will have the following options:-
• If the company is listed in some other stock exchange(s), it may continue to remain listed in the other stock exchange(s).
• In case of companies exclusively listed on those de-recognised stock exchanges, it shall be mandatory for such companies to either seek listing at other stock exchanges or provide for exit option to the shareholders as per SEBI Delisting Guidelines / Regulations after taking shareholders’ approval for the same. Failing to do so will result in the delisting of the companies through operation of law.

SEBI Master Circular on Anti Money Laundering (AML and Combating Financing of Terrorism (CFT)

SEBI on December 19th, 2008 has come out with a consolidated SEBI Master Circular on Anti Money Laundering (AML) and Combating Financing of Terrorism (CFT). SEBI states that compliance with these standards by all intermediaries and the country has become imperative for international financial relations.

History

Anti Money Laundering laws in India were a result of the lobbying done some Bankers in India. As some of these Banks approached regulators of foreign jurisdictions seeking permission to open shops, one of the reasons cited by regulators to reject their applications was the absence of anti money laundering laws in India. Later, the Prevention of Money Laundering Act, 2002 (PMLA) was brought into force with effect from 1st July 2005. Necessary Notifications / Rules under the said Act were published in the Gazette of India on July 01, 2005. Subsequently, SEBI issued necessary guidelines vide circular no. ISD/CIR/RR/AML/1/06 dated January 18, 2006 to all securities market intermediaries as registered under Section 12 of the SEBI Act, 1992. These guidelines were issued in the context of the recommendations made by the Financial Action Task Force (FATF) on anti-money laundering standards.

Highlights of the Circular

1. Registered intermediary should establish appropriate policies and procedures for the prevention of money laundering and terrorist financing and should ensure their effectiveness and compliance with all relevant legal and regulatory requirements.
2. Such procedures should include inter alia, the following three specific parameters which are related to the overall ‘Client Due Diligence Process’. These include (1) Policy for acceptance of clients, (2) Procedure for identifying the clients and (3) Transaction monitoring and reporting especially Suspicious Transactions Reporting (STR).
3. Registered intermediaries should adopt an enhanced customer due diligence process for higher risk categories of customers. Conversely, a simplified customer due diligence process may be adopted for lower risk categories of customers.
4. Registered intermediaries should ensure compliance with the record keeping requirements contained in various regulations.
5. Intermediaries are required to report information relating to cash and suspicious transactions to the Director, Financial Intelligence Unit-India (FIU-IND).

A copy of the Circular is available here.