SEBI Board Meeting Updates: SEBI Enhances Requirements For Portfolio Managers, Issues New Default Disclosures Norms  

The Securities and Exchange Board of India today made a host of announcements pertaining to portfolio managers, rights issues and default disclosures.

The market regulator has enhanced the requirements for portfolio managers. They now have to have a minimum networth requirement of Rs 5 crore instead of Rs 2 crore earlier. Even the minimum limit of new investments by clients has been increased to Rs 50 lakh from Rs 25 lakh earlier.

Another significant announcement was the new loan disclosure norms for listed companies. In case of default beyond 30 days, listed companies will have to disclose the failure to repay within 24 hours of the 30th day.

These provisions will be applicable from Jan. 1, 2020.

The SEBI board has approved a proposal to reduce the time taken to complete a rights issue to about 31 days from about 55 days currently.

Watch SEBI Chairman Ajay Tyagi’s full press conference and BloombergQuint’s show analysing the impact of the decisions.

Indian Banks’ Association chief executive officer VG Kannan said that the new disclosure norms are welcome even if they may spark “undue” concerns of volatility in banking.

• Bankers are not uncomfortable with this. They always welcomed it.
• Don't think banks would be unduly worried.
• SEBI's move more or less coincides with the review period of the RBI too.
• Both regulators seem to be working together.

ASK Investment Managers’ Prateek Agrawal said that the increase in signing up amounts for new investors from Rs 25 lakh to Rs 50 lakh will reduce the pool of investors available for the portfolio management industry.

“This pool of investors was already narrow, about 3-4 lakh people qualified at the Rs 25 lakh limit,” Agrawal, the chief investment officer at ASK, said. “With the limit at Rs 50 lakh, the pool really shrinks.”

The increased networth criteria for portfolio managers will, however, have little impact.

“The networth criteria implies that more serious players come in rather than fly-by-night operators. This has little impact on people managing Rs 500 crore and more. For smaller guys, they've been given three years so it should be okay for them as well.”

The SEBI has also decided that in case of any default in repayment of loans from banks or financial institution beyond 30 days of the pre-agreed payment date, listed companies will have to disclose the default within 24 hours of the 30th day.

These provisions will be applicable from Jan. 1, 2020.

“The philosophy is that more and more information is in the public domain which can then guide investors as to what is happening,” SEBI chairman Ajay Tyagi said.

The top 1,000 listed companies by market capitalisation will be required to include business responsibility reporting as part of their annual reports. Earlier, this was only applicable to the top-500 listed firms.

The SEBI board has approved a proposal to reduce the time taken to complete a rights issue to about 31 days from about 55 days currently.

The key proposals are:

• Reduction in the timeline for completion of the right issue from ~T+55 days to ~T+31 days.
• Introduction of dematerialised Rights Entitlements and trading of these on stock exchanges.
• Shareholders holding shares in physical form wil be required to provide details of demat account for credit of Rights Entitlements.
• ASBA facility made mandatory for all investors applying to rights issue. The Applications Supported by Blocked Amount is a process in which the applicant's account doesn't get debited till securities are alloted.

The SEBI board has approved proposals of a working group to enhance requirements for portfolio management systems. These steps were suggested to safeguard the interest of investors and development of the investment product, SEBI said.

The salient features include:

• To enhance the eligibility criteria and to define the role of Principal Officer clearly. The enhanced eligibility criteria to be applicable to any employee with decision making authority relating to the management of the clients' portfolios.
• A portfolio manager to mandatorily employ minimum one person with defined eligibility criteria in addition to principal officer and compliance officer.
• Net worth requirement of portfolio managers enhanced to Rs 5 crore from Rs 2 crore. Existing portfolio managers to meet the enhanced requirements within 36 months.
• Minimum investment by clients to be increased to Rs 50 lakh from Rs 25 lakh. Existing investments of clients may continue until the end date of the PMS agreement.
• Discretionary portfolio managers to invest only in listed securities, money market instruments and mutual funds and other such securities specified by SEBI.
• Non-discretionary advisory portfolio managers to invest not more than 25 percent of the asset under management in unlisted securities.

The board of Securities and Exchange Board of India is conducting its periodic meeting to discuss a host of issues. Chairman Ajay Tyagi will be addressing the media to announce the decisions taken at 4:30 p.m.

One of the main items of the agenda is streamlining the rights issue process.

The market watchdog may take a decision on a proposal to reduce the time taken for rights issues to around 31 days.

The regulator had come out with a consultation paper on the mode of fundraising in May over the rights issue. In the paper, SEBI proposed to reduce the overall time taken for rights issue as well as to make the application and allotment process more efficient.

Currently, the rights issue process takes 55-58 days from the time a company decides to launch the issue till the listing.

The regulator is of the view that there is a need to reduce the timelines—both in the pre-issue opening phase and after issue closure—such that issuers and shareholders benefit from process efficiencies.

PMS Recommendations

The other issue likely to be discussed is increasing the minimum investment limit for portfolio managers to Rs 50 lakh from Rs 25 lakh currently.

Earlier a SEBI working group had proposed a number of changes to make portfolio management services more transparent and investor-friendly.

The group recommended increasing the net worth criteria to Rs 5 crore from Rs 2 crore. It also suggested changes in the use of nomenclature for regulatory reporting, client reporting and disclosure documents.

Other than that, it also suggested changes in portfolio managers charge an exit fee.