SEBI Board Meet: UPI-like Demat Protections, Clear Corps' Independence, & More On Agenda

The Securities and Exchange Board of India is slated to see its first board meeting under the leadership of the newly appointed Chairperson Tuhin Kanta Pandey on March 24 and several big ticket topics are to be discussed.

As per people in the know, UPI-like protections for demat accounts, independence of clearing corporations, expanding the scope of qualified institutional buyers, fee collections by research analysts and more issues are on the agenda. 

In an attempt to protect investors and their trading accounts from unauthorised access, identity theft, SIM spoofing, OTP frauds and account modifications, the markets regulator had proposed to put a UPI-like one device-one SIM authentication system in place on Feb. 18.

SEBI has suggested a unique client code per investor to be bound with the SIM of a mobile phone. This means that just as a UPI payment application that recognises the SIM card, bank details, and the mobile device while carrying out a transaction, the trading system will also be able to recognise such details.

In November 2024, Ananth Narayan spoke for the first time on the issue of clearing corps' independence from their parent exchanges. As per people in the know, this could come up for discussion in the board meeting. However, it is possible that instead of a complete demerger, only the ownership percentage of the exchanges on the clearing entities would be capped.

Globally, many markets treat CCs as public utilities, often independently owned and operated to serve the collective interests of all stakeholders. In India, however, CCs are currently wholly owned by their respective parent exchanges.

SEBI has already discussed potential reforms, including a possible demerger of stock exchanges and clearing corporations, with its Secondary Market Advisory Committee.

On Feb. 13, the markets regulator proposed stronger measures for ESG rating providers to deal with rating withdrawals, disclosures, audits and government norms.

The regulator has suggested that environmental, social and governance rating providers deal with rating withdrawals in respect of whether they follow a subscriber pays model or an issuer pays model.

In the case of the subscriber pays model, the rating providers can withdraw the ratings only if there are no active subscribers but for the issuer pays model, other conditions like having a minimum rating period of three years will have to be fulfilled.

Additionally, in the issuer pays model, rating providers will also need an approval from 75% of bondholders before withdrawing ratings.

On Feb. 12, SEBI proposed to allow investment advisors and research analysts to charge advance from their clients for a period not exceeding one year.

The one-year advance fee can be taken from individual clients and Hindu Undivided Families, as per SEBI's proposal. However, institutional clients, accredited advisors and individuals operating through proxy advisors will have their fee worked out via terms decided in their bilateral contracts.

Furthermore, the advance fee can be taken from individual and HUF clients only if they agree.

SEBI released a consultation paper on Feb. 20, proposing amendments to regulations for Infrastructure Investment Trusts and Real Estate Investment Trusts. Their core purposes are to streamline existing regulations, particularly concerning preferential issues, follow-on public offers, and pricing mechanisms.

One key proposal is to align the lock-in requirements for preferential allotments with those applicable during initial public offerings. Under the new framework, the minimum sponsor holding requirement of 15% for three years will remain unchanged. However, additional provisions may apply based on the sponsor's role in managing the trust.

SEBI has also proposed a detailed framework for FPOs by InvITs and REITs, clarifying aspects like eligibility criteria, disclosure norms, and investor participation.

Another SEBI proposal from Feb. 21 provided for Qualified Institutional Buyers to include Accredited Investors for Angel Funds. This would allow Angel Funds to raise money from more investors, beyond the 200-investor cap set by the Companies Act for private placements.

The idea is that Accredited Investors, like QIBs, have the financial knowledge and resources to assess risks independently.

Lastly, SEBI suggested removing the 200-investor cap for individual startup investments by Angel Funds. This would make it easier for startups to raise funds from a larger pool of accredited investors, while still ensuring compliance with regulations.