SEBI postpones the deadline for implementing new valuation norms

SEBI vide circular Cir/IMD/DF/4/2010 dated June 21, 2010 has postponed the deadline for implementing new norms for valuation of mutual fund houses’ debt and money market instruments. The norms would be applicable from August 1, 2010 as opposed to the old deadline of July 1, 2010.


Earlier this year, SEBI had modified the provisions related to the valuation of debt and money market instruments by mutual fund houses (covered in this blog here).

A copy of the circular is available here.

ULIPs part of life insurance business

The President of India has promulgated an ordinance on 18 June 2010 amending the RBI Act 1934, Insurance Act 1938, SEBI Act 1992 and Securities Contract Regulations Act 1956, thereby clarifying that life insurance business would include any Unit Linked Insurance Policy (ULIPs) or scripts or any such instruments. This brings an end to the 2 months long battle between the regulators SEBI and IRDA, by giving IRDA the jurisdiction over ULIPs business.

Earlier SEBI had stated that its approval is required for insurance companies to offer ULIPs products to customers. Later SEBI stated that this direction would apply only to any new ULIP schemes / products launched after 9 April 2010. IRDA, however, protested that SEBI has no jurisdiction over ULIPs and that regulating any product related to insurance fell under its domain. Meanwhile the fight between regulators had reached the Supreme Court of India, where a petition filed by SEBI is pending.

Government also stated that a high level committee under chairmanship of union finance minister has been constituted in order to sort-out all issues of jurisdiction regarding hybrid products.

A copy of the press release is available here.

SEBI amends master circular on AML/CFT

SEBI vide circular CIR/ISD/AML/2/2010 dated June 14, 2010 has amended the master circular on Anti Money Laundering (“AML”) Standards/Combating Financing of Terrorism (“CFT”). The major changes are as follows:

1. The scope of Customer Due Diligence (“CDD”) done by Registered Intermediaries (“RIs”) has been increased to include the periodic updation of all documents, data or information of all clients and beneficial owners (“CDD Data”) collected under the CDD process. However SEBI has not prescribed the frequency for such updation of the CDD Data or any triggers which would require the updation of the CDD Data.

2. It has been clarified that the internal audit function in RIs should be independent, adequately resourced and commensurate with the size of business and operations, organization structure, number of clients and other such factors.

3. RIs should revisit their CDD process (customer acceptance policies and other customer profiling policies) when there are suspicions of money laundering or financing of terrorism (“ML/FT”).

4. Usually RIs adopt simplified customer due diligence process for lower risk categories of customers. However SEBI has now clarified that low risk provisions should not apply when there are suspicions of ML/FT or when other factors give rise to a belief that the customer does not in fact pose a low risk.

5. RIs should independently access and consider publicly available information other than the Financial Action Task Force statements while dealing with clients in high risk countries.

6. SEBI has enhanced the CDD measures to determine whether a client/ potential client/customer is a politically exposed person.

7. As per the current regulations RIs should maintain the records of the identity of clients for a period of 10 years from the date of cessation of transactions between the client and RI. It has been clarified that the “date of cessation of transactions” would mean the “date of termination of an account or business relationship”.

8. SEBI has clarified that the prohibition against the ‘tipping off’ of the filing of Suspicious Transactions Reports (“STR”) by any officers of the RIs to the clients would extend not only to the filing of the STR and/or related information but even before, during and after the submission of an STR.

A copy of the circular is available here.

Depositories to post all their regulatory orders and arbitration awards on their websites

SEBI vide circular CIR/MRD/DP/19/2010 dated June 10, 2010 has directed depositories to post all their regulatory orders and arbitration awards issued since April 1, 2007, on their websites within 30 days. Further, all future regulatory orders and arbitration awards as and when issued by depositories should be posted on their website immediately. This move aims at improving the transparency in disclosing the regulatory orders and arbitration awards issued by depositories.

Earlier, SEBI had directed stock exchanges to post on their respective websites all regulatory orders and arbitration awards issued by them immediately after they are issued.

A copy of circular is available here.

Public shareholding in listed companies to be 25%

The Government has notified the Securities Contracts (Regulation) (Amendment) Rules, 2010 with effect from 4 June 2010. The salient features of this amendment rules are the following:

a) The minimum threshold level of public holding will be 25% for all listed companies.

b) Existing listed companies having less than 25% public holding have to reach the minimum 25% level by an annual addition of not less than 5% to public holding.

c) For new listing, if the post issue capital of the company calculated at offer price is more than Rs. 4000 crore, the company may be allowed to go public with 10% public shareholding and comply with the 25% public shareholding requirement by increasing its public shareholding by at least 5% per annum.

d) For companies whose draft offer document is pending with Securities and Exchange Board of India on or before these amendments are required to comply with 25% public shareholding requirement by increasing its public shareholding by at least 5% per annum, irrespective of the amount of post issue capital of the company calculated at offer price.

e) A company may increase its public shareholding by less than 5% in a year if such increase brings its public shareholding to the level of 25% in that year.

f) The requirement for continuous listing will be the same as the conditions for initial listing.

g) Every listed company shall maintain public shareholding of at least 25%. If the public shareholding in a listed company falls below 25% at any time, such company shall bring the public shareholding to 25% within a maximum period of 12 months from the date of such fall.

h) ‘Public shareholding’ does not include shares which are held by custodian against depository receipts issued overseas like ADRs and GDRs.


A copy of the rules is available here.