SEBI To Introduce a Platform for Risk Reduction Access to Investors Facing Trading Disruption
Moneylife Digital Team 20 December 2022
Market regulator Securities and Exchange Board of India (SEBI), decided to introduce a platform for risk reduction access to help investors in case of disruption of trading services provided by a stock broker. While increasing the minimum utilisation of the amount to 75% from 50% for buyback via the stock exchange, the market regulator has decided to phase out the buyback in a gradual manner through the stock exchange route. SEBI also decided to amend regulations to strengthen the focus and governance mechanisms of market infrastructure institutions (MIIs). It also decided to introduce a framework to facilitate execution-only platforms (EOPs) for direct plans of mutual fund (MF) schemes. 
In case of disruption of trading services provided by a stock broker, SEBI decided to introduce a platform for risk reduction access to investors. It says, "In the event of disruption of trading services provided by a broker, clients face significant risk if they are unable to square off their open positions and / or cancel orders pending at the stock exchange, particularly when the markets are volatile. To provide such clients a facility to reduce the risk of open positions / pending orders during periods of disruption in the services of their broker, it has been decided that stock exchanges shall introduce an investor risk reduction access platform. A detailed framework for the platform shall be issued by way of circular."
The SEBI board, which met on Tuesday says, after considering the various suggestions received from stakeholders concerning buyback of shares, it approved some amendments to the SEBI (Buy-back of Securities) Regulations, 2018. This includes, "Buy-back through stock exchange route to be phased out in a gradual manner, increasing the minimum utilisation of the amount earmarked for buyback through stock exchange route from existing 50% to 75% and creation of a separate window on stock exchanges for undertaking buyback till the time buyback through stock exchange is permitted."
For the buyback through tender offer route, the market regulator decided to reduce the timeline for completion of the buyback by 18 days by removing the requirement of filing a draft letter of offer with SEBI and its observations thereof and reduction of the duration of the tendering period and period available for payment of consideration to the shareholders.
While permitting upward revision of buyback price until one working day before the record date, SEBI made it mandatory to place the relevant advertisements and documents for buyback, such as, a copy of the public announcement and letter of offer on the website of the stock exchange(s), merchant banker and the company for better dissemination of information to shareholders.
During the meeting, the SEBI board decided to introduce a framework to EOPs for direct plans of  MF schemes. It says, "A number of entities, including investment advisers (IAs) and stock brokers, offer execution services in direct plans of MF schemes through digital mode. Presently, there is no regulatory framework in place to facilitate the provision of such 'execution only services' in direct plans of MF schemes, independent of the regulatory requirements applicable to IAs and stock brokers."
Under the approved framework, EOPs may be granted registration under either of the two categories: category-1 EOP as an agent of asset management companies (AMCs), registered with the Association of Mutual Funds of India (AMFI) or category-2 EOP as an agent of investor, registered as a stock broker.
"The detailed framework and the modalities of implementation of the same, nature of services that may be offered by the EOPs, cyber security requirements, pricing of services, and grievance redressal mechanisms shall be notified through circulars," SEBI says.
SEBI also decided to strengthen focus and governance mechanisms in market infrastructure institutions (MIIs) through various amendments in the regulations. MIIs would be categorised into three verticals, critical operations, regulatory, compliance and risk management, including the role of MIIs as first-level regulators of intermediaries and listed entities, as well as investor grievance redressal and other functions, including business development.
"The key management personnel (KMPs) heading the functions under the first two verticals to be at par in the hierarchy with the KMPs heading the third vertical," SEBI says in a release. 
It also asked MII to prioritise the resource allocation towards the functions under the first two verticals over resource allocation towards the third vertical.
The market regulator also decided to rationalise the appointment process of public interest directors (PIDs) by mapping specific skill sets and expertise to PIDs. "The MIIs will be required to mandatorily appoint PIDs with background and expertise in the areas of technology, law and regulatory, finance and accounts and capital markets. In line with the extant requirement, the PIDs will continue to meet every six months, and in addition to submission of a report to the board of the MII, they will be required to submit a report to SEBI after the meeting," it added.
To bring accountability to KMPs in MIIs, the SEBI board decided to change the definition to cover employees based on the importance of their activities and their relative hierarchy within the intermediaries.
SEBI says, "The appointment and removal of KMPs will be done by nomination and remuneration committee (NRC). The MIIs will appoint a separate chief risk officer (CRO), who will be in-charge of handling risks associated with the MII. The performance of KMPs will be evaluated in every six months." 
"In addition to existing reporting requirements, the CRO or compliance officer will be required to submit a quarterly report to SEBI on non-compliances. No employee of the MII will be permitted to simultaneously be an employee of a subsidiary of the MII," it says.
According to the market regulator, a sharper code of conduct will be applicable to the MII, the governing board, directors, KMPs and committee members and board members and KMPs will be held accountable if they are aware of wrongdoing(s) and do not appropriately report it.
MIIs are required to frame an internal policy for sharing and monitoring data which will entail means and manner of data sharing, types of data that can be shared, and escalation matrix for data sharing.
"These regulatory changes are expected to bring in greater transparency and accountability in the functioning of MIIs. The amendments will come into effect from 180 days from the date of notification in the official gazette," SEBI says.
Here are the other decisions taken by the SEBI board…
Enhanced risk management framework for stock brokers designated as Qualified Stock Brokers (QSBs)
Certain Stock Brokers in the market handle a very large number of clients, very large amount of client funds and very large trading volumes. Possible failure of such brokers has the potential to cause widespread impact on investors and reputational damage to the Indian securities market. To mitigate this risk, the Board approved amendments to the SEBI (Stock Brokers) Regulations, 1992 to designate such stock brokers, based on identified parameters, as Qualified Stock Brokers (QSBs). QSBs would need to comply with enhanced risk management practices/ requirements. There would also be enhanced monitoring of such QSBs by SEBI / Market Infrastructure Institutions (MIIs). A detailed framework on QSBs shall be issued separately by way of Circular.
Streamlining the on-boarding process to facilitate ease of doing business and reducing the time taken for registration of Foreign Portfolio Investors (FPIs)
In order to further reduce the time taken for granting registration to FPIs, the Board approved the following regarding procedural requirements for on-boarding FPIs:
1. Granting registration on the basis of scanned copies of application forms / supporting documents and activation of trading post verification of physical documents;
2. Acceptance of use of digital signatures by FPIs, in accordance with the provisions of the Information Technology Act, 2000, for execution of registration related documents;
3. Permitting use of SWIFT mechanism for certification, by authorized bank officials, of copies of original documents submitted by FPIs to DDPs. This would reduce physical movement of documents and the time taken for registration;
4. Permitting verification of PAN by DDPs through the Common Application Form (CAF) module available on the websites of the Depositories.  
5. Submission of unique investor group ID by FPI applicants in lieu of complete details of group constituents.
The Board also approved amendments in the SEBI (Foreign Portfolio Investors) Regulations, 2019 for providing clarity on the various timelines given in the said Regulations.
Amendment to SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (NCS Regulations) to facilitate sustainable finance while safeguarding against ‘greenwashing’.
In the backdrop of increasing interest in sustainable finance in India as well as around the globe, and with a view to align the extant framework for green debt securities with the updated Green Bond Principles (GBP) recognised by IOSCO, SEBI undertook a review of the regulatory framework for green debt securities.
Based on the review, it has been decided to: 
Enhance the scope of definition of green debt security by including new modes of sustainable finance in relation to pollution prevention and control, eco-efficient products, etc.; Introduce the concept of blue bonds (related to water management and marine sector), yellow bonds (related to solar energy) and transition bonds as sub categories of green debt securities;
SEBI will also specify the basic dos and don’ts relating to green debt securities, to address issuers against ‘green-washing’ related risks.
Facilitation of participation by AIFs in Credit Default Swaps
To provide greater investment flexibility to Managers of AIFs and to facilitate deepening of the domestic Corporate Bond market, it has been decided to permit AIFs to participate in Credit Default Swaps (‘CDS’), not only as protection buyers, but also as protection sellers, subject to conditions for risk mitigation. The Board has approved the following types of transactions in CDS by AIFs:
Amendment to SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (NCS Regulations), to streamline appointment of nominee director and specify public issue timelines.
Based on comprehensive stakeholder consultations and detailed deliberations, the Board has approved certain regulatory interventions for Corporate Bond market, the details of which are given below: 
With a view to better protect the interests of debenture holders, it has been decided that, Issuers of listed debt securities shall incorporate suitable provisions in their Articles of Association, to cast obligation on the Board of Directors of the issuer to appoint the person nominated by its Debenture Trustee (DT) as a director in the event of default. Corresponding amendments are to be made in the Debenture Trust Deed. The existing listed debt issuers are required to do the needful by September 30, 2023.  
Presently, there are no stipulations with respect to the duration for which a public issue of debt securities or Non-Convertible Redeemable Preference Shares (NCRPS), should be kept open. With a view to address any possible inefficiencies and delays due to such lack of regulatory mandate, it has been decided that public issue of Debt Securities and NCRPS shall be kept open for subscription for a minimum period of three working days and maximum period of ten working days.
These timelines are aligned with timelines provided for specified securities under SEBI (ICDR) Regulations, 2018.
Introduction of governance norms for REITs  and  InvITs on the lines of corporate governance norms for listed companies
With the intention to introduce governance norms for REITs and InvITs in line with SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, it has been decided to amend the SEBI (Real Estate Investment Trusts) Regulations, 2014, SEBI (Infrastructure Investment Trusts) Regulations, 2014 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 to provide as under:
The corporate governance norms applicable for listed companies to be applicable to REITs and InvITs, irrespective of whether any debt security was issued by them. 
However, certain provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 which are not directly applicable or is already specified for REIT / InvIT under respective Regulations have been carved out.                                   
Streamlining provisions related to tenure of auditor, computation of leverage, unclaimed/unpaid distribution and other provisions for REITs  and  InvITs 
With the intention to streamline tenure of auditor, computation of leverage, unclaimed/unpaid distribution, etc, SEBI (Real Estate Investment Trusts) Regulations, 2014 and SEBI (Infrastructure Investment Trusts) Regulations, 2014 will be amended to provide as under:
  • Tenure of auditor to be till the conclusion of the fifth annual general meeting of unit holders;
  • Statutory auditor of REIT/ InvIT to undertake limited review of audit of all the entities or companies whose accounts are to be consolidated;
  • Investment in overnight fund to be considered as cash and cash equivalent, for the purpose of computation of leverage;
  • Unclaimed / unpaid distributions for REIT/ InvIT to be transferred to the ‘Investor Protection and Education Fund’ constituted by SEBI. 
Framework for Adoption of Cloud Services by SEBI Regulated Entities
The Board approved the framework for adoption of cloud services by SEBI Regulated Entities (REs). The framework is a principle-based framework containing nine broad principles which must be followed by REs for deploying cloud services. The framework highlights the following aspects associated with adoption of cloud services:
  • Risk Assessment
  • Regulatory and Legal Compliances
  • Rights, Responsibilities, and Accountabilities of RE
  • Mandatory Security Measures and Controls
  • Rights of SEBI and other government agencies
The framework will assist the REs in leveraging benefits of cloud computing as well as developing a new approach to deal with various issues related to cloud services such as safeguarding of sensitive information, country risk, disaster recovery, concentration risk, etc.
Free Helpline
Legal Credit