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Sebi amends regulations for IDs, criteria for InvITs and REITs; jacks up reward for insider trading… –

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Market regulator Securities and Exchange Board of India (SEBI) has amended regulations for Independent Directors (IDs), changed the criteria for Invits and REITs and increased the reward for insider trading informants.

At its Board meeting on June 29, SEBI approved amendments to the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations) pertaining to regulatory provisions related to Independent Directors.

It ruled that any appointment/re-appointment and removal of IDs shall be through a special resolution of shareholders for all listed entities.

Appointing IDs

The SEBI board also laid down the process of appointing Independent Directors.

The procedure to be followed by the Nomination and Remuneration Committee (NRC), while selecting candidates for appointment as IDs, has been elaborated and made more transparent, including enhanced disclosures regarding the skills required for appointment as an ID and how the proposed candidate would fit into that skillset.

It also finalised that the composition of the NRC has been modified to include two-thirds IDs, instead of the existing requirement of a majority of IDs.

Shareholder approval

Shareholder approval for appointment of all directors, including IDs, shall be taken at the next general meeting, or within three months of the appointment on the Board, whichever is earlier.

Relatives of employees of the company, its holding, subsidiary, or associate company have been permitted to become IDs, without the requirement of a cooling-off period, in line with Companies Act, 2013.

At least two-third of the members of the Audit Committee shall be Independent Directors and all related party transactions shall be approved only by them.

These amendments shall come into effect from January 1, 2022.

Said Anand Lakra, Partner, J Sagar Associates:  “By introducing a higher voting threshold for appointment of IDs, from 50 percent to 75 percent, public shareholders would play an important part in companies with low promoter stake. A more public shareholder-friendly approach would have been to introduce the requirement of seeking a majority of public shareholder vote for appointment of IDs, which was articulated in the discussion paper. Additionally, two key positive changes approved are the reduction of time a person can act as an ID before he or she comes up for shareholder vote and the concept of cooling-off period for IDs that have resigned as well as for appointment.”

Change in lot size and application value 

The Board recognised that the market is demanding a change in the lot sizes of REITs (Real Estate Investment Trusts) and InvITS (SEBI (Infrastructure Investment Trusts) Regulations, 2014), which is currently Rs 1 lakh and in multiple of one lakh.

SEBI offered the following change: “The Board considered and approved the amendments to SEBI (Real Estate Investment Trusts) Regulations, 2014 and SEBI (Infrastructure Investment Trusts) Regulations, 2014, for revision in minimum subscription and trading lot for publicly issued REITs and InvITs. The revised minimum application value shall be within the range of INR 10,000-15,000 and the revised trading lot shall be of one unit”.

Relaxation in rules for REITs and InvITs

The Board also approved relaxation for unlisted REITs and InvITs in tapping the bond market.

The major provisions of the new regulations, issuers (legal entities) other than unlisted REITs and InvITs who are in existence for less than three years, have been facilitated to tap the bond market.

Under the prevailing scenario, issuance of their debt securities is made only on a private basis and the issue is open for subscription only to QIBs (qualified institutional buyers).

According to  Harsh Shah, CEO of IndiGrid, “The reduction in trading lot size to 1 is a landmark step by SEBI to deepen the market for InvITs in India. This will not only lead to better liquidity and efficient price discovery, but also provide an attractive opportunity for retail investors to earn stable yields with growth potential. The move also paves the way for increased institutional participation with greater confidence on liquidity. This policy action by SEBI will pave the way for a vibrant and successful InvITs market in India for infrastructure investment.”

Accredited Investors

The Board also approved the proposal to introduce a framework for ‘Accredited Investors’ in the Indian securities market, a class of investors who may be considered well informed or well advised about investment products.

It authorised a payment bank for taking application money of initial public offer (IPO) to “provide easy access to investors to participate in public/rights issues by using various payment avenues.”

Importantly, it cleared the proposal to amend the SEBI (Bankers to an Issue) Regulations, 1994, by way of permitting banks, “other than scheduled banks, as may be specified by SEBI from time to time, to register as a Banker to an Issue”.

Informant amount

The market regulator has also increased the informant amount from Rs one crore to Rs 10 crore.

Anil Chaudhary, partner with FinSec Law Advisors told Moneycontrol “ The increase in the “bounty” for information relating to potential insider trading was a much required change. Although the reward system was introduced a few years back, this was not found to be very effective due to the low rewards offered and the risk-reward ratio was not in favour of the informant. Hopefully, a higher reward may lead to more information to SEBI for prosecuting insider trading violations”.

The regulator approved their annual accounts, which will be tabled in Parliament during the monsoon session.

However, for a second successive time, the Board has not approved amendments to the Stock Exchange and Clearing Corporation regulations.

Under this amendment, the regulator has plans to allow 100 percent anchor investment in the exchange and depositories segments.