SEBI (Issue of Capital and Disclosure Requirements) (Fourth Amendment) Regulations, 2010 notified

SEBI has notified the SEBI (ICDR) (Fourth Amendment) Regulations, 2010, amending the SEBI (ICDR) Regulations, 2009. This amendment regulations came into effect from November 12, 2010. The major changes made to ICDR regulations by this amendment regulations are the following:

1.                  Investment limit for retail investors has been raised from the current Rs 1 lakh to Rs 2 lakh. (see previous post)

2.                  Insurance funds, set up and managed by department of posts, to be recognised as a QIBs.

3.                  Issuers coming out with public offer to make a simultaneous public announcement (in newspapers) about the filing of draft offer document with SEBI.

4.                  The merchant bankers to submit a compliance certificate in the specified format to SEBI certifying as to whether the contents of the news reports appearing after filing of draft offer document are supported by disclosures in the offer document or not.

Amendment in relation to conditions for initial public offer

SEBI has also amended regulation 26(5) of the ICDR Regulations. The amended regulation reads as follows:

“No issuer shall make an initial public offer if there are any outstanding convertible securities or any other right which would entitle any person with any option to receive equity shares.”

The regulation originally read as follows:

“No issuer shall make an initial public offer if [as on the date of registering the prospectus with the Registrar of Companies] there are any outstanding convertible securities or any other right which would entitle any person any option to receive equity shares [after the initial public offer].”  The words “as on the date of registering the prospectus with the Registrar of Companies” and “after the initial public offer” has now been deleted.

The implication of this amendment is that the issuing company should not have any outstanding convertible securities at the time of filing red herring prospectus/ prospectus with the ROC. This is evident from the second amendment made in the same regulation. A new proviso (c) has been added to regulation 26(5) wherein SEBI exempts fully-paid up outstanding convertible securities which are required to be converted on or before the date of filing of the red herring prospectus (in case of book-built issues) or the prospectus (in case of fixed price issues) from the purview of the above mentioned rule. This means the following:

1. An issuer company can have certain outstanding convertible securities at the time the time of filing the draft red herring prospectus with the SEBI, provided that (a) such securities are fully paid up and (ii) such securities are required to be converted on or before the date of filing of the red herring prospectus/ prospectus with the Registrar of Companies.

2. An issuer company cannot have:
(a) any partly paid up outstanding convertible securities; or
(b) fully paid up outstanding convertible securities which are required to be converted at a date after the filing of the red herring prospectus/ prospectus with the Registrar of Companies,
 at the time of filing of the draft red herring prospectus/ draft prospectus with the SEBI.

[Apologies for certain typos in the original post. They are now corrected. - Emil]

A copy of the amendment regulations is available here.

Revised exposure margin for exchange traded equity derivatives

SEBI vide its circular CIR/DNPD/3/2010 dated July 7, 2010 has revised the exposure margin for exchange traded equity derivatives. SEBI has now decided that the exposure margin should be higher of 5% or 1.5 times the standard deviation (of daily logarithmic returns of the stock price). Earlier in October, 2008, SEBI had stated that the exposure margin should be higher of 10% or 1.5 times the standard deviation (of daily logarithmic returns of the stock price) of the notional value of the gross open position in single stock futures and gross short open position in stock options in a particular underlying.

A copy of the circular 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.

SEBI amends listing agreement – Listing companies prohibited from issuing shares with superior rights

SEBI vide its Circular SEBI/CFD/DIL/LA/2/2009/21/7 dated July 21, 2009 has amended the Equity Listing Agreement to prohibit listed companies from issuing shares with superior rights as to voting or dividend vis-à-vis the rights on equity shares that are already listed. This amendment gives effect to an important decision taken by the SEBI Board on June 18, 2009. A new clause 28A has been inserted in the equity listing agreement to this effect.

A copy of the Circular is available here.

SEBI amends DIP Guidelines

SEBI vide its Circular SEBI/CFD/DIL/DIP/36/2009/09/07 dated July 9,2009 has amended the SEBI (Disclosure and Investor Protection) Guidelines, 2000. These amendments give effect to important decisions taken by the SEBI Board on June 18, 2009, including the introduction of 'Anchor Investor' in public issue. The key amendments are summarised below: -

1. An unlisted company making an IPO should compulsorily list its securities on at least one stock exchange having nationwide trading terminals (i.e. BSE or NSE)
2. Concept of 'Anchor Investor' is introduced in public issues through book building. Keys points in relation to 'Anchor Investor' concept are as follows: -  

• 30% of QIP reservation may be allocated to Anchor Investors
• The minimum application size - Rs.10 crores. 25 % payable on application – balance within 2 day of closure of issue
• If price determined in IPO is greater than the price paid by AI, AI will be required to pay the difference to the company
• One-third of the Anchor Investor portion shall be reserved for domestic mutual funds
• Bidding for to open one day before the issue opens and shall be completed on the same day.
• Allocation to Anchor Investors - minimum 2 investors for upto Rs.250 crs. and 5 for more than Rs.250 crores
• Shares shall be in a lock-in of 30 days from the date of allotment in the public issue

A copy of the Circular is available here.

A copy of the amended SEBI (Disclosure and Investor Protection) Guidelines, 2000 is available here.

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SEBI changes debt fund valuation norms for Mutual Funds

SEBI vide its SEBI / IMD / CIR No. 2/166256/ 2009 dated June 12, 2009 has changed the norms for valuation of debt securities held by mutual funds. Now the fund houses would be needed to value their funds nearer to market levels. SEBI has now shifted back to its valuation norms practiced till October last year, when it had allowed the fund houses to use a wider margin in valuing their debt securities. With this change in the permissible mark-up and mark-down levels -- the margins allowed above and below the exact market value -- the fund houses would be allowed lesser margin levels. As per the new norms, Mutual Funds would be allowed a mark-up (the upward permissible margin) of 100 basis points and a mark- down of 50 basis points (the downward margin) for rated debt securities with maturity duration of up to two years. Earlier in October 2008, SEBI had raised the mark-up and mark-down for such securities to 500 basis points and 150 basis points, respectively.

A copy of the circular is available here.

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.

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.