Clarifications on open offer, buyback offer and delisting offers

SEBI has issued certain clarifications in form of an FAQ in relation to open offer, buyback offer and delisting offers. This has been prepared based on the common queries received by SEBI from investors. It covers topics like the non receipt of the offer document / acceptance/ tender form (in case of takeover offer/ buyback offer/ delisting offer), non receipt of payment after tendering shares etc.

A copy of the FAQ is available here.

Cap on expenses for FoF schemes, additional details in offer documents

SEBI vide press release PR No.122/2010 dated May 19, 2010 has announced the decisions of the board meeting of SEBI held on the same day.

Offer documents to contain additional details

The offer documents of companies raising capital should also contain disclosures from directors as to whether they were directors of any company when the shares of the said company were suspended from trading by stock exchange(s) for more than 3 months during last 5 years or delisted.

Cap on expenses for Fund of Funds (FoF) schemes

SEBI has decided that the FoF schemes may either (i) charge annual expenses based on the provisions under regulation 52 (6) of SEBI (Mutual Funds) Regulations, 1996 relating to fees and expenses including management fee, or (ii) charge total expenses not exceeding 2.50 per cent of the average of net assets, consisting of management fees not exceeding 0.75 per cent of the average of net assets, other expenses relating to the FoF scheme, and charges levied by the underlying schemes.

Regulation 52 (6) states that in case of an FoF scheme, the total expenses of the scheme including the management fees shall not exceed 0.75% of the daily or weekly average net assets, depending upon whether the NAV of the scheme is calculated on daily or weekly basis.

FoF scheme is a mutual fund scheme that invests primarily in other schemes of the same mutual fund or other mutual funds.

A copy of the press release is available here.

Amended SEBI (ICDR) Regulations, 2009 now available for download

SEBI has made available on its website a latest version of the SEBI (ICDR) Regulations, 2009 incorporating the changes made by the SEBI (ICDR) (Amendment) Regulations, 2009, SEBI (ICDR) Amendment Regulations, 2010, SEBI (ICDR) (Second Amendment) Regulations, 2010 and SEBI (ICDR) (Third Amendment) Regulations, 2010.

A copy of the amended regulations is available here.

SEBI guidelines for credit rating agencies

SEBI vide CIR/MIRSD/CRA/6/2010 dated May 3, 2010 has provided for certain transparency and disclosure norms for the Credit Rating Agencies (“CRAs”). The major measures taken in this regard are summarized below:

1. CRAs should maintain records of the rating committee, including voting details and notes of dissent, for a period of five years.
2. It has been made mandatory for CRAs to publish information about the historical default rates of their rating categories and whether the default rates of these categories have changed over time.
3. CRAs should ensure that its analysts do not participate in any kind of marketing and business development, including negotiations of fees with the issuer whose securities are being rated. Also, the employees involved in the credit rating process and their dependants cannot own shares of the issuer.
4. CRAs while rating structured finance products, are barred from providing consultancy or advisory services regarding the design of the structured finance instrument. This prohibition would apply to the subsidiaries of CRAs too. While publishing the ratings of structured finance products and their movements, CRAs apart from following all the applicable requirements in case of non-structured ratings should also disclose the track record of the originator and details of nature of underlying assets while assigning the credit rating.
5. In case of unsolicited credit ratings (the credit ratings not arising out of the agreement between the CRAs and the issuer), credit rating symbol should be accompanied by the word “UNSOLICITED” in the same font size.
6. CRAs should also disclose (i) the policies, methodology and procedures in detail followed by them regarding solicited and unsolicited credit ratings, (ii) the history of credit rating of all outstanding securities, (iii) the general nature of its compensation arrangements with the issuers and (iii) the details of any relationship it has with the issuer whose securities are being rated and any of its associate of such issuer and the CRAs or its subsidiaries.

SEBI commented that the recent events in global financial system have underlined the pivotal role that credit ratings play. Effective use of credit ratings by the users is crucially dependent upon quality and quantity of disclosures made by the CRAs. Reserve Bank of India had recently published two documents which review the role of CRAs in India.

A copy of the circular is available here.