SEBI To Review Key Proposals In Dec. 18 Board Meeting — A Look At What's On Agenda

The regulatory is set to discuss a plethora of topics, including review of the definition of Unpublished Price Sensitive Information under SEBI's Insider Trading Regulations, 2015, and amendments to mutual fund regulations to ease business and compliance for asset management companies.

The agenda also includes discussing measures to simplify business processes for REITs, InvITs, and ESG rating providers, including proposals for smaller REITs.

Other topics likely to be taken up include possible amendments to merchant banking regulations, faster rights issues with flexible allotment under SEBI (ICDR) Regulations, and enabling SEBI-registered stock brokers to access the Negotiated Dealing System, for trading in government securities through Separate Business Units.

Another major point of discussion would be use of AI tools by MIIs and assigning responsibility.

The regulatory is set to discuss a plethora of topics, including review of the definition of Unpublished Price Sensitive Information under SEBI's Insider Trading Regulations, 2015, and amendments to mutual fund regulations to ease business and compliance for asset management companies.

The agenda also includes discussing measures to simplify business processes for REITs, InvITs, and ESG rating providers, including proposals for smaller REITs.

Other topics likely to be taken up include possible amendments to merchant banking regulations, faster rights issues with flexible allotment under SEBI (ICDR) Regulations, and enabling SEBI-registered stock brokers to access the Negotiated Dealing System, for trading in government securities through Separate Business Units.

Another major point of discussion would be use of AI tools by MIIs and assigning responsibility.

In the initial days of November, SEBI proposed a review of the definition of Unpublished Price Sensitive Information under SEBI Prohibition of Insider Trading Regulations. The markets regulator put out the consultation paper on Nov. 9 and the paper will remain open for comments till Nov. 30.

One of the relevant proposals is the disclosure of "agreements, by whatever name called, impacting the management and control of the company", according to the paper. The company is also proposed to disclose managerial details like changes in personnel along with any action that is initiated against any key personnel by enforcement authority or judicial body.

Any fraud or defaults by a listed entity, arrest of key managerial personnel or others needs to be disclosed, according to the proposal. Changes that are proposed also include the disclosure in any change of capital structure.

This means that certain outlined information from board meetings needs to be disclosed to the stock exchange within 30 minutes. Any sort of agreements that have been proposed internally, along with agreements with third parties are proposed to be disclosed.

There are a few other changes that have been proposed, like the settlement of loans, rejection or approval of insolvency, outcome of disputes and status of licences.

These proposed changes aim to ensure that the workings of the AMC is better disclosed to the public. The changes have been proposed across various facets of the working of an AMC, including change in key personnel, administrative or structural changes and any reports of actions that have been taken against the AMC.

SEBI had earlier proposed measures to ease business for Small and Medium REITs, by standardising disclosures in scheme offer documents and simplifying the public issue process.

The proposals include aligning SM REIT regulations with existing REIT norms, promoting transparency and simplifying regulations.

SEBI suggests splitting the offer document into two parts: Key Information of the Trust and Key Information of the Scheme, to provide clear details on the trust's structure and individual scheme assets.

SEBI has recommended permitting REITs, SM REITs, and InvITs to use interest rate derivatives to manage risks.

It also proposed allowing locked-in units to be transferred within sponsor groups, similar to regulations for promoters of listed companies. Other suggestions include recognising fixed deposits as cash equivalents for calculating leverage, clarifying credit rating requirements for REIT and InvIT borrowings, setting deadlines for filling board vacancies, and broadening the asset base for REITs and SM REITs.

SEBI has proposed changes to the framework for ESG Rating Providers, especially those using a subscriber-pays model.

The changes include exempting these ERPs from disclosing ESG ratings to stock exchanges and requiring them to share ESG reports, with both subscribers and the rated issuer at the same time.

Additionally, SEBI recommends that rated entities and their affiliates should not be allowed to subscribe to their own ESG ratings.

SEBI also floated proposed changes to Merchant Banker Regulations to align them with current market practices earlier.

Under the new proposals, merchant bankers (excluding banks and public financial institutions) will be limited to activities directly related to the securities market. These activities include managing public issues, rights issues, acquisitions, takeovers, buybacks, and delisting.

SEBI also suggested a new classification system based on net worth, with Category 1 firms (net worth of Rs 50 crore) able to handle all activities, while Category 2 firms (net worth of Rs 10 crore) will be restricted from mainboard issues. Existing firms will have two years to meet the new net-worth requirements.

SEBI has proposed to allow stock brokers to trade government securities through the RBI's Negotiated Dealing System-Order Matching and set new rules for this activity.

Brokers must conduct government bond trading in a separate business unit, distinct from other securities activities.

The SBU must maintain a separate account, and its net worth should be kept separate from the broker’s overall net worth. The broker's net worth will be calculated excluding the SBU's account.

SEBI has also proposed amendments to regulations governing the use of artificial intelligence and machine learning tools by market participants, including stock exchanges, clearing corporations, and depositories.

The proposed changes require entities using AI/ML tools to take full responsibility for the privacy, security, and integrity of investor data, as well as for ensuring compliance with applicable laws. They will also be accountable if the output from these tools is relied upon or acted upon.

Additionally, market infrastructure institutions, registered intermediaries, and other regulated entities will need to report their use of AI/ML systems, regardless of the extent of their adoption.

The amendments will introduce new provisions to the Securities and Exchange Board of India regulations, holding entities using these technologies responsible for data protection and legal compliance.

These changes apply to the Intermediaries Regulations, Stock Exchanges and Clearing Corporations Regulations, and Depositories.