SEBI permits derivative contracts on volatility index

SEBI vide circular CIR/DNPD/ 1 /2010 dated April 27, 2010 has permitted stock exchanges to introduce derivative contracts on volatility index like the Volatility Index (“VIX India”) of National Stock Exchange (“NSE’). The derivative contracts introduced on volatility index are subject to the following conditions:

(a) The underlying volatility index has a track record of at least one year.
(b) The exchange has in place the appropriate risk management framework for such derivative contracts.

SEBI also has asked stock exchanges to file details like contract specifications, position and exercise limits, margins, the economic purpose it is intended to serve, likely contribution to market development etc. to SEBI before introduction of such derivative contracts.

Earlier in January 2008, SEBI has permitted stock exchanges to adopt any of the volatility index computation models available globally or develop their own model for computation of volatility index. Last month SEBI has permitted in principle the introduction of derivative contracts on volatility indexes.

Volatility Index is a measure of market’s expectation of volatility over the near term. Volatility is often described as the “rate and magnitude of changes in prices” and in finance often referred to as risk. Volatility Index is a measure, of the amount by which an underlying Index is expected to fluctuate, in the near term, (calculated as annualised volatility, denoted in percentage e.g. 20%) based on the order book of the underlying index options. Currently, only the NSE has the Volatility Index, called India VIX. NSE has introduced this index in April 2008.

A copy of the circular is available here.

Indicative timelines for the proposed issue process

SEBI vide circular CIR/CFD/DIL/3/2010 dated April 22, 2010 has issued the indicative timelines for various activities in the proposed issue process, wherein the time period between issue closure and listing is reduced to 12 working days. Earlier on April 6, 2010 SEBI had decided to reduce the time period between issue closure and listing to 12 working days from the current 22 days for public issues opening on or after May 1, 2010.

A copy of the circular is available here.

SEBI discontinues EDIFAR system

SEBI vide circular CIR/CFD/DCR/3/2010 dated April 16, 2010 has amended the equity listing agreement and has discontinued the Electronic Data Information Filing and Retrieval (EDIFAR) system hosted by National Informatics Centre on behalf of SEBI. This is in view of the new portal viz. Corporate Filing and Dissemination System (CFDS) put in place jointly by BSE and NSE at www.corpfiling.co.in. The equity listing agreement has been amended to reflect this change.

www.corpfiling.co.in is the common filing and dissemination portal for all companies listed on the BSE & the NSE. It aims at providing a single interface to the investors to keep track of the latest filings of all the listed companies in India irrespective of the stock exchange.

A copy of the circular is available here.

SEBI’s ban on ULIPS to remain with respect new schemes/products

SEBI vide press release PR No.96/2010 dated April 13, 2010 has stated it has decided to keep in abeyance, till further notice, the enforcement of its order (banning 14 life insurance companies from selling ULIPs till they obtained SEBI registration) with respect to the ULIP schemes /products existing on the date of the order, i.e. 09.04.10. However, with respect to any new ULIP schemes / products launched after 09.04.10, the directions mentioned in the said order will be enforced.

A copy of the press release is available here.

SEBI commences disbursement process of disgorged amount

The disbursement of reallocation amount to 12.75 lakh investors from the amount disgorged in the matter of IPO irregularities commenced today. The first set of cheques was handed over by Shri Pranab Mukherjee, Hon’ble Finance Minister of India at a function held on SEBI Foundation Day at New Delhi today. The Finance Minister, Shri Pranab Mukherjee initiated the process of disbursement of disgorgement proceeds to investors who have been identified as rightful beneficiaries of the gains recovered from the wrong doers. Describing this as a significant milestone, the Finance Minister said that this is the first time that not only the manipulators are being penalized but the amount recovered is being redistributed to the persons who were deprived of their gains. The Finance Minister expressed hope that this first but significant step will go a long way towards making the investors feel safe and secure while investing in the stock markets.

More details are available here and here.

SEBI approval required for offering ULIPs

SEBI vide order WTM/ PS /IMD/06/APR/2010 dated April 9, 2010 has stated that ULIPs (Unit Linked Insurance Plans) are a combination of investment and insurance and therefore it can be offered/launched only after obtaining registration from SEBI under section 12(1B) of the SEBI Act. SEBI stated that the investment components in ULIPS are in the nature of mutual funds which require registration with SEBI under section 12(1B) of the SEBI Act 1992.

This order has been passed against 14 insurance companies which offer ULIPS to customers. Earlier in January 2010, SEBI had issued show cause notices against these companies, as SEBI prima facie found that these companies offer ULIPs which are similar to the mutual fund schemes without obtaining registration from the SEBI. Insurance companies pleaded that ULIPs are predominantly life insurance products having an investment component. It was argued that a ULIP is insurance cover and is dependent on human life and the mere existence of an additional investment feature cannot convert a ULIP into a mutual fund. They also contended that regulations issued by IRDA are special laws for ULIPs and SEBI cannot apply the general laws applicable to tradeable securities such as collective investment schemes or mutual funds to ULIPs.

Rejecting the arguments of insurance companies, SEBI stated that a combination product containing an investment component, in any proportion, exposing investors to risks of securities market products, can be issued only after obtaining registration from SEBI and in compliance with the applicable laws. SEBI also stated that units of ULIPS have the characteristics of units of mutual funds. Units of mutual funds are “securities” as defined under Section 2 (h) of Securities Contracts (Regulations) Act, 1956. Merely because they are named as units of ULIPs, such units cannot be ousted from the ambit of definition of “securities”. As regards the contention that ULIPS were launched after following appropriate procedures and obtaining requisite permission from IRDA, SEBI said that the approval from one regulatory authority does not exempt the entity from complying with other applicable laws administered by relevant regulators. Accordingly SEBI has directed the insurance companies not to issue any offer document, advertisement, brochure soliciting money from investors or raise money from investors by way of new and/or additional subscription for any product (including in ULIPs) having an investment component in the nature of mutual funds, till they obtain the requisite certificate of registration from SEBI.

A copy of the order is available here.

SEBI extends ASBA facility to QIBs

SEBI vide circular CIR/CFD/DIL/2/2010 dated April 06, 2010 has extended the Applications Supported by Blocked Amount (ASBA) facility to Qualified Institutional Buyers (QIBs) in public issues opening on or after May 1, 2010. Earlier in December 2009, SEBI had extended ASBA facility to all investor categories like HNIs and corporate investors except QIBs (referred as ASBA Phase II). The rule at that time was QIBs were required to bring in only 10% of application money at the time of placing bids. Later in March 2010, SEBI revised this rule and stated that QIBs should bring in 100% of the application money as margin along with the application for securities in public issues from May 1, 2010. SEBI has now extended the facility of ASBA to QIBs so that while placing the bids, the QIBs need not pay the application money by cheque. Under ASBA facility the bank account of the QIBs would be blocked to the extent of the application money and the application money would get debited from account only if their application is selected for allotment after the basis of allotment is finalized.

A copy of the circular is available here.

SEBI issues master circular for depositories

SEBI vide circular CIR/MRD/DP/11/2010 dated April 6, 2010 has issued a master circular for depositories compiling the circulars issued by SEBI up to March 31, 2010. This master circular comes into force with immediate effect.

A copy of the master circular for depositories is available here.

SEBI has also issued a master circular on allotment of codes to stock exchanges, subsidiary management by stock exchanges, governance of recognised stock exchanges and arbitration in recognised stock exchanges. This master circular summarises and consolidates the circulars/directions issued by SEBI in this regard up to March 31, 2010. This master circular also comes into force with immediate effect.

A copy of abovementioned master circular is available here.

Earlier SEBI had issued the following master circulars:

Master circular on oversight of members in March 2010
Master circular for mutual funds in January 2010
Master circular on Anti Money Laundering (AML) and Combating Financing of Terrorism (CFT) in December 2008

SEBI reduces timelines between issue closure and listing

SEBI vide press release PR No.88/2010 dated April 6, 2010 has proposed to reduce the time between public issue closure and listing to 12 days from existing of up to 22 days. This will be applicable to public issues opening on or after May 1, 2010. This move by SEBI is a part of its continuing endeavor to make the existing public issue process more efficient.

The new process would require syndicate members to capture all data relevant for the purposes of finalizing the basis of allotment while uploading bid data in the electronic bidding system of the stock exchanges. To ensure that the data so captured is accurate, syndicate members would be permitted an additional day to modify some of the data fields entered by them in the electronic bidding system. Registrar to the issue is required to validate the bids and finalize the basis of allotment only on the basis of the final electronic bid file provided by the stock exchanges. The Lead Managers/their agents would be responsible for the accuracy of data entry and for resolving investor grievances.

A copy of the press release is available here.

SEBI amends equity listing agreement

SEBI vide circular CIR/CFD/DIL/1/2010 dated April 5, 2010 has amended the equity listing agreement to include the following listing conditions in the listing agreement:

Amendment to clause 24 – Requirement of auditors’ certificate for accounting treatment under schemes of arrangement: Listed companies from now on, while submitting the scheme of amalgamation / merger / reconstruction, etc. to the stock exchanges under clause 24(f) of the Equity Listing Agreement, should also submit to the concerned stock exchange, an auditors’ certificate to the effect that the accounting treatment contained in such schemes is in compliance with all the applicable accounting standards.

Amendment to clause 41(I)(c),(d)(e) and 41(VI)(b) – Revised timelines for submission and publication of financial results by listed entities: Listed companies should disclose, on standalone or consolidated basis, their quarterly (audited or un-audited with limited review), financial results within 45 days of the end of every quarter. Audited annual results on stand-alone as well as consolidated basis, should be disclosed within 60 days from the end of the financial year for those entities which opt to submit their annual audited results in lieu of the last quarter unaudited financial results with limited review. These amendments have been made with the view to streamline the submission of financial results by listed companies. This provision comes into force with immediate effect.

Insertion of Clause 41(I) (g) – Voluntary adoption of International Financial Reporting Standards (IFRS) by listed entities having subsidiaries: In order to familiarize listed companies with the IFRS requirements, SEBI decided to provide an option for listed companies having subsidiaries to submit their consolidated financial results either in accordance with the accounting standards specified in section 211(3C) of the Companies Act, 1956, or in accordance with IFRS. This provision comes into force with immediate effect.

Insertion of Clause 41(1) (h) – Requirement of a valid peer review certificate for statutory auditors: The limited review/statutory audit reports submitted to the stock exchanges should only be given by those auditors who have subjected themselves to the peer review process of ICAI and who hold a valid certificate issued by the ‘Peer Review Board’ of the said Institute. This would be applicable to all financial statements submitted by listed companies to the stock exchanges after appointment of auditors for accounting periods commencing on or after April 01, 2010.

Insertion of clause 41(V) (h) and Annexure IX – Interim disclosure of Balance Sheet items by listed entities: Listed companies should disclose within forty-five days from the end of the half-year, a statement of assets and liabilities in the specified format (as a note to their half-yearly financial results). This provision comes into force with immediate effect.

Modification in formats of limited review report and statutory auditor’s report: SEBI has amended the formats for submission of limited review reports by the statutory auditors and the formats for reports by the statutory auditors.

Insertion of Clause 49(II)(D)(12A) – Approval of appointment of ‘CFO’ by the Audit Committee: SEBI has decided that the appointment of the CFO of listed company should be approved by the Audit Committee before finalization of the same by the management. The Audit Committee, while approving the appointment, should assess the qualifications, experience & background etc. of the candidate. This provision comes into force with immediate effect.

A copy of the circular is available here.

SEBI issues guidance note for investors to understand offer documents

SEBI has issued a ‘Guide to understand the offer document’ with the objective to help the reader to navigate through the content of an offer document. SEBI has explained various sections of the offer document and its importance to the investor. In relation to the section of ‘risk factors’, SEBI has stated that ‘it is generally advised that the investors should go through all the risk factors of the company before making an investment decision.’ This guide is followed by FAQs on the investment in public/rights issue and the book building process.

Copies of the guidance note and the FAQs are available here.

SEBI asks stock exchanges to post all orders on websites

SEBI vide circular SEBI/MRD/DSA-OIAE/Cir.- 09 /2010 dated April 1, 2010 has directed stock exchanges to post on their respective websites all regulatory orders and arbitration awards issued by them immediately after they are issued. SEBI also mandated that stock exchanges should also post all their regulatory orders and arbitration awards issued since April 1, 2007, on their websites within 30 days. This circular comes into effect with immediate effect. This move by SEBI is prompted by feedback from investor associations and it aims at improving transparency in disclosing regulatory orders and arbitration awards issued by stock exchanges.

A copy of the circular is available here.