SEBI Board Meeting 2024:  Major Reforms and New Directives for HNI, investors & MFs

On 30 September, that was yesterday, when the Sebi board meeting was held and the capital market watchdog surprised the investors and even the experts to quite an extent with its moves. Securities and Exchange Board of India (SEBI) came up with crucial measures and norms to simplify trading and mutual fund investments. However, what mostly shocked the market was the stance of SEBI on limiting derivatives trading exponential surge. 

Madhabi Puri Buch, Chairperson of SEBI said that the rise in derivative trading is completely a macroeconomic issue, which is diverting capital from being used for productive purposes. However, she also said that tax rate hikes will be implemented in the coming month which can lower derivative trading, and the volume has already been coming down from the record high of $6 trillion in February 2024. 

Key highlights of SEBI Board Meeting 2024

1. Addition of New Asset Class for HNIs having higher risk appetite: A new asset class like long-short equity to be offered to high net worth and high-risk investors as announced in the SEBI meeting. The asset management companies now can offer this kind of investment strategies and instrument, which will be filling the gap between rigidly monitored mutual funds, and lenient portfolio management services. This asset class for HNIs will also help the HNIs to increase their exposure in the equity derivative segment. The minimum investment required for this asset class is ₹ 10 lakh per investor but it can be segregated amongst different investment strategies present in the new product. The market watchdog also commented that this move will help the market to grow deeper and add variety to the investment landscape. While this is a high-risk asset class, to protect investors, there will be no investment in unlisted stocks, or unrated instruments, and no leverage as well beyond permissible limits. Now in MFs and derivatives, the exposure limit is 25% of asset under management (AUM). 
2. MF Lite Framework: SEBI announced a new framework for mutual funds, especially passive funds and that is Mutual fund Lite. This will have nominal and less rigid regulations, for the entities who wish to launch passive mutual fund schemes only. In this framework, there will be relaxed eligibility criteria for sponsors, a record of accomplishment, net worth, profitability, approval process, disclosures, and more. SEBI anticipates this move to encourage new players, increase market depth, help in investment diversification, and ease of new entry in the market and innovation growth too. This framework has been approved, as the current framework does not suit the passive funds that much. SEBI is offering the choice to the AMCs whether they want to separate their active and passive schemes and if yes then the passive schemes will be managed by a different AMC under the same sponsor. However, if they choose to continue under the existing AMC, then also the MF Lite framework will apply to the passive schemes. 
3. Rights Issue now in 23 days: SEBI confirmed faster rights issue timeline via preferential allotment route. It will take around 23 days from the approval of the issue. Currently, it takes around 317 days and even the preferential allotment takes 40 days. From now onwards, no need to file a draft letter of rights issue with SEBI, it has to be filed with stock exchanges. The market controller also said that the letter just needs to contain relevant details regarding the rights issue which would include objective, price, record date, and entitlement ratio mainly. The reduced timeframe can help the companies raise funds easily and help the stakeholders take part in the growth of the company. 
4. Changes in insider trading norms: SEBI in this board meeting widened the meaning of ‘connected person’ and ‘immediate relative’ as well. Under the insider trading norms, to help in investigations and rights enforcement. Now the definition of relative in the insider trading regulation includes spouse, child, siblings, and parents of the connected person as well. The business partners, distant relatives, or employees, all are now included in the definition. 
5. Changes in Eligibility Norms for RAs, IAs & UPI Payment Method: The last major announcement in this board meeting of SEBI was related to the eligibility of IAs, and RAs. SEBI announced a relaxation of the eligibility criteria for registration and the compliance requirements to be simplified as well. Further, SEBI mandated the stock brokers to make sure that they offer a UPI block mechanism payment facility in the cash segment or a 3-in-1 trading feature. 

Other important announcements

• Under the T+0 settlement, the eligible scrips are to be increased in a phased manner from the top 25 to the top 500 as per the market cap. 
• Mutual fund houses, and Foreign Portfolio Investors (FPIs) will be able to opt for the T+0 settlement cycle as well.
• Optional block deal window feature to be included under T+0 settlement cycle.  
• A single filing system to be introduced where listed companies need to file only relevant reports and other documents with only one stock exchange and from there, the same will be distributed with other stock exchanges.
• For the distribution of returns and investments, the rights of investors in an AIF scheme will be on a pro-rata basis from now onwards. 
• FPI’s offshore derivative instruments (ODIs) or P-notes as well as the segregated portfolios will now require disclosure and prohibited from issuing ODI where derivatives are underlying assets and hedging ODIs with derivative positions. 

Source: Mint

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