SEBI's 208th Board Meeting—Key Highlights: Stricter SME IPO Rules, Insider Trading Updates, Use Of AI And More

The markets regulator, Securities and Exchange Board of India (SEBI), conducted its 208th board meeting on Wednesday where several reforms and updates were approved across various focus areas.

Here’s a list of the top ten key highlights:

Among other things, now the SMEs will be required to show an operating profit of at least Rs. 1 crore from operations for two out of the last three financial years at the time of filing their Draft Red Herring Prospectus (DRHP). 

Additionally, any offer for sale by selling shareholders in an SME IPO will be capped at 20% of the total issue size, with selling shareholders prohibited from selling more than 50% of their holdings. 

The Securities and Exchange Board of India has approved its proposals on the merchant banker activities. The approved proposals curb any activity not outlined by SEBI and set restrictions on valuation activities, among other things.

If these entities wish to carry out any other activities, they will need to come up with a separate business unit and obtain the necessary authorisations from the relevant bodies.

Moreover, any non-permitted activities must be hived off into a separate legal entity, which must operate under a distinct brand name within two years. Both the original merchant banker and the newly created entity will be required to follow a code of conduct set by SEBI.

Among other changes, the regulations also introduce restrictions on the valuation activities that MBs can undertake.

The Securities and Exchange Board of India (SEBI) approved a proposal to recognise a "Past Risk and Return Verification Agency" to help regulated entities or their agents market their services to investors using verified risk-return metrics.

Under this new framework, a credit rating agency (CRA) will act as the agency, with a recognised stock exchange serving as the data centre for it.

The primary function of this CRA plus verification agency will be to verify the risk-return metrics for investment advisors, research analysts, algorithmic trading entities, and others authorised by SEBI to offer such services.

However, it has been clarified that the verification of risk-return metrics will only apply prospectively, beginning from the date of opting for the agency’s service.

The Securities and Exchange Board of India (SEBI) approved changes to the definition of Unpublished Price Sensitive Information (UPSI) under the Insider Trading Regulations, 2015. The changes were made to enhance regulatory clarity and streamline compliance in the market.

The amended definition now includes 17 out of 27 material events, which were previously not covered, into the illustrative list of UPSI.

For small and medium REITs, SEBI has taken steps to standardise disclosures, including bifurcating the scheme offer document into Key Information of the Trust (KIT) and Key Information of the Scheme (KIS).

These changes aim to simplify the processing and filing of scheme-related documents and align the regulatory framework for SM REITs with larger REITs, making it easier for these entities to operate and raise capital.

SEBI introduced amendments to its Mutual Fund Regulations, easing the framework for Asset Management Companies (AMCs) in terms of aligning the interest of employees with that of unitholders. Changes include reducing the minimum investment amount, frequency of disclosures, and the lock-in period for employees who resign.

Additionally, a new provision mandates the disclosure of results from stress testing conducted on all mutual fund schemes, adding another layer of transparency to the industry

The SEBI board introduced reforms concerning the use of artificial intelligence tools by market infrastructure institutions.

These entities will now be fully accountable for the privacy, security, and compliance of data handled by AI tools, ensuring that investors' interests are safeguarded. The regulations will cover all levels of AI adoption and require firms to take responsibility for the outcomes generated by these technologies.

ESG rating providers will now be required to share their ESG rating reports with both subscribers and rated issuers simultaneously.

In addition, the creation of an activity-based regulatory framework for ERPs aims to enhance the governance structure and efficiency of the ESG ratings ecosystem, ultimately promoting sustainable investments in India.

SEBI approved a slew of measures aimed at easing the operational challenges for InvITs and REITs.

The reforms include allowing inter-group transfer of locked-in units among sponsor entities, providing a clear definition of "common infrastructure," and enabling investment in interest rate derivatives for hedging purposes.

The board approved changes to the SEBI Custodian Regulations to enhance risk management and governance within the custodial services space.

Key changes include the requirement for custodians to maintain a dedicated net worth of Rs. 75 crore and the introduction of a Business Continuity Plan (BCP) and Disaster Recovery framework, aligning custodians with industry best practices.