SEBI's 2024 Reforms: SME IPO Rules, Options Trading Curbs, Insider Trading Updates And More

From the curbs on the future and options trading segment to protect small investors and household wealth to introducing stricter guardrails for the IPOs of small and medium enterprises and a new asset class, SEBI took significant steps this year.

Here are five key regulatory changes of 2024:

SEBI has made it compulsory for the premium (the price) for options to be paid upfront by the buyers. This is to prevent traders from taking excessive borrowed funds to hold positions beyond what they can afford. 

On the expiry day of contracts, investors often use "calendar spreads" (a strategy of offsetting positions with different expiration dates) to reduce risk. SEBI has decided that this calendar spread benefit will not be available on the expiry day for contracts that expire. This aims to minimise risks associated with large volumes of trading on expiry days, ensuring a fairer market. 

The regulator has also been mandated to monitor traders’ positions in equity index derivatives not just at the end of the day, but also during the day. This measure helps ensure that traders don’t exceed position limits at any point, particularly on days with high trading volumes, like expiry days. Stock exchanges will take multiple "snapshots" throughout the day to monitor this. 

SEBI has increased the minimum contract size for index derivatives to be from Rs. 15 lakh to Rs. 20 lakh. Finally, in a major hit, the regulator has decided to limit weekly index derivatives contracts to just one benchmark index per stock exchange. 

After issuing warnings about the SME IPOs to the investors, the regulator gave a green light to regulations for stricter oversight of the small and medium enterprise’ IPOs in its last board meeting. 

The new regulations require that an issuer must have an operating profit of Rs 1 crore for at least two out of the last three financial years to be eligible for an IPO. Additionally, the offer for Sale by selling shareholders in SME IPOs will be capped at 20% of the total issue size, and shareholders cannot sell more than 50% of their holdings.

As per the new monitors, 50% of the excess promoter holding will be unlocked after one year, and the remaining 50% will be released after two years. Further, the process for allocating shares to non-institutional investors in SME IPOs will now align with the main-board IPOs.

To prevent excessive fund allocation to non-essential purposes, the regulations also cap the amount allocated for general corporate purposes to only15% of the total funds raised or Rs. 10 crore, whichever is lower. Furthermore, SME IPOs will not be allowed if the proceeds are intended for loan repayment to promoters, promoter groups, or related parties, either directly or indirectly.

SEBI has also asked the intending entities to make available their DRHP for SME IPOs to the public for 21 days in newspapers and accompanied by a QR code for easy access. 

The regulator has approved amendments to the SEBI (Mutual Funds) Regulations, 1996, introducing a new investment product to bridge the gap between mutual funds and portfolio management services.

It will be known as "investment strategies," with a minimum investment limit of Rs 10 lakh.

The Securities and Exchange Board of India 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. This has been done to include all information under the umbrella of the definition that affects the stock price.

As per the regulator’s mandate, restructuring plans, one-time bank settlements, and other corporate decisions will now be considered as unpublished price-sensitive information.

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.