Board Meeting on March 15, 2001

  Press Release

 

  BOARD MEETING ON MARCH 15, 2001

Board meeting of SEBI was held in Delhi today and the major issues discussed as also the important decisions taken are as follows:

REVIEW OF MARKET SITUATION

Board reviewed the market situation and noted the various measures taken by SEBI. While reviewing these measures, the Board suggested that SEBI should reiterate its directive to the stock exchanges to comply with the requirement of introducing gross margining on the basis of data available from the systems (and not on self certification basis) by March 31, 2001.

Under ALBM & BLESS, securities which are lent have to be deposited with the Clearing Corporation or Clearing House and cannot be sold or substituted during the same settlement. The Board felt that Exchanges be directed to ensure strict compliance with the above. 

The Board discussed the announcements made by the Finance Minister made on the floor of the Parliament. Government and SEBI would take early steps to implement these decisions. 

CODE OF ETHICS FOR DIRECTORS AND FUNCTIONARIES OF EXCHANGES

The Board gave in principle approval to enforcing a ‘code of ethics’ for Directors and functionaries of Stock Exchanges with the aim of strengthening market integrity by improving professional and ethical standards of exchanges and also for avoiding conflict of interest and creating better perception amongst investors about their working. The code would among others lay down disclosure requirement for functionaries’ investing/trading in securities. It will also provide that broker directors who are office bearers of stock exchanges like President, Vice President, Treasurer etc. will not do proprietary trading while holding office and other broker directors would disclose their proprietary trades to the Ethics Committee of the Governing Board. 

DISCLOSURE REQUIREMENT FOR SEBI REGISTERED INTERMEDIARIES WHILE TENDERING INVESTMENT ADVICE PUBLICLY 

Following a meeting of the stock exchanges on January 17, 2001, it was decided that if any intermediary regulated by SEBI gives public investment advice on a particular security or investment proposal, such advice should also be accompanied by a disclosure of interest in that security or proposal by the intermediary. This while not precluding any intermediary from giving any investment advice, would help caution an investor about the nature of the advice and also prevent misuse at the same time. 

Subsequently, SEBI had appointed a Group to work out the modalities for such disclosure. It was decided that 

1. The disclosure requirement would apply to investment advice

1. by a SEBI regulated intermediary 
2. related to a specific security, whether directly named or indirectly referred to with a reasonable degree of identification, and 
3. which is given over any media which is publicly accessible

Such will also include index futures and other derivative products. 

1. The person giving investment advice shall be required to disclose in the media in which the recommendation is being made whether the person or the employer firm or his dependent family member have any interest including long or short position in the security.
2. The intermediaries must ensure that whenever any representative of the intermediary is giving such public investment advice, such advice is invariably accompanied by the disclosure mentioned above.
3. Compliance Officer of the intermediary shall be responsible for monitoring compliance with the above disclosure requirements. Already some of the intermediaries are required by SEBI to have compliance officers. SEBI will now stipulate the appointment of compliance officers by other intermediaries.

To give effect to these decisions, it was necessary to amend the various regulations of SEBI covering the intermediaries who usually give investment advice or are concerned with the investment process as well as the mutual funds/asset management companies. Board approved amendment to these regulations.

PRIMARY MARKET DEPARTMENT

Report of the Working group on Multiple Applications.

SEBI Board considered and accepted the report of the working group on multiple applications and decided to amend the SEBI (Disclosure and Investor Protection) Guidelines 2000 as follows:

1. Multiple applications in an issue would not be permitted unless the applicant declares and identifies in all his application forms except the first form, that he is making multiple applications and identify all such applications. All these applications (in single name as well as joint names) would be clubbed and will be considered in the higher category (>10 market lots) and therefore be subject to smaller proportion of allotment while finalising the basis of allotment.
    
2. A uniform minimum standard procedure would be used by all Registrars to an issue for the purpose of detection of multiple applications. 
3. All suspicious fictitious applications should be detected. The allotments on these applications would be completed in the same manner as that for normal applications but the despatch of share certificates/ credit to demat account in respect of these 'fictitious' applications would be frozen until such time that the identity and genuineness of the applicant is established. Only after satisfactory verification on the genuineness of the applicant, the shares would be credited/ released to the allottees. 
4.  The present system of allotment in market lots would be done away with. There would be a simple proportionate allotment to the applicants in the respective categories. However, to prevent fractional allotments and allotments of miniscule value, the minimum allotment should be higher of the following :
   
   i. one share or
   
   ii. smallest integral number of shares that have a value of Rs. 1000/- calculated on the basis of issue price.
5. Applications for new issues can be made available through alternative sources of supply of applications such as through internet, newspaper, photocopies in addition to the present system of pre-printed pre-numbered applications. 

Public issue and listing of debt securities before listing of equity 

The Board decided to allow all companies to issue debt securities to the public without listing equity. This facility is presently available only to infrastructure companies and municipal corporations. It has been decided that this facility shall be subject to the following conditions:

1. Entry Norms


The securities proposed to be issued shall carry an investment grade credit rating. For issues above Rs. 100 crores investment grade rating from 2 credit rating agencies will be required. The debt instruments may be secured or unsecured. The issuer shall comply with the provisions of Rule 19(2)(b) of SCRR regarding the size of the public offer of the debt securities. In addition to the above requirement, in the case of convertible debt securities, the entry norms specified in clause 2.2 of the Guidelines shall be attracted. 
 

2. Promoters contribution and lock in


The promoters shall bring the equity contribution of 20% and lock in the same for a period of 3 years from the date of allotment in the public issue. The promoters contribution here would be with reference to the project cost as against post issue equity capital in the case of public issue of equity/equity convertibles. Where the promoters contribution exceeds Rs. 100 crores the promoters shall bring in Rs. 100 crores before issue opening and the remaining on pro rate basis before calls on the debt instruments are made.
 

3. Continuing disclosures 


The issuer would be subject to the same standards of continuing disclosures under the listing agreement as is required in the case of public issue of equity.
 

4. Debt holder rights


The issuer shall be required to obtain prior consent of the holders of the publicy issued debt securities through special resolution at their meeting. Such special resolution would be required for change in the terms of the issue, change in capital structure and change in shareholding pattern. These rights would be in addition to the rights under the Trust deed.
 

5. Price/coupon rate Band


To provide flexibility to issuers (making issue through conventional route) to determine the coupon rate/pricing closer to the date of opening of the issue, a 20% band on the coupon rate /pricing may be indicated at the time of filing of the draft offer document with the Board. 
 

6. Partly paid up shares /other securities 


There shall be no partly paid up shares/other securities at the time of filing of draft offer document with the Board for public issue of debt securities without issue of equity. 
 

7. IPO of equity/Listing of promoter equity 

If the issuer proposes to issue equity/equity convertibles to public during the period when the issuer has only its debt securities listed, it shall be required to comply with the guidelines as applicable to IPOs of equity/convertibles. 

The equity of the promoters may be listed along with IPO of equity or at the time of conversion of the publicly issued debt instruments into equity.
 

1. Outstanding convertibles at the time of IPO of equity 

The publicly issued debt securities shall be exempt from the requirement in the existing guidelines that at the time of filing of draft offer document with the Board for IPO of equity or equity convertibles, there should be no outstanding warrants or other securities convertible into equity at a later date. This exemption shall be subject to the condition that that the floor price for conversion is fixed and disclosed upfront in the prospectus of the public issued debt security.
 

1. Book Building facility 

The issuer shall have option to make the issue through book building process to ascertain and determine the coupon rate and price of the debt security. The provisions of Chapter XI of the DIP guidelines for public offer through book building process shall be applicable to such issue. 

All other guidelines applicable to issues of pure debt instruments/PCDs/FCDs shall be applicable to the issue.

AMENDMENTS TO THE SEBI (MUTUAL FUNDS) REGULATIONS, 1996

1. Half-Yearly Disclosures


At present the mutual funds are required to publish unaudited financial results in the newspapers, before the expiry of two months from the close of each half year i.e. on 31^st March and on 30^th September in the prescribed format.

From the half yearly unaudited financial reports currently being published by the mutual funds, it has been observed that the reports are too cumbersome and as a result the investors may not be getting any meaningful information from the disclosures in the report. Moreover, in many cases the print of such advertisements is so small that it is not readable.

In order to provide the investor with some meaningful information about the operations of the mutual fund, the Board approved a simplified format for the half yearly unaudited results. The mutual funds would now be required to disclose unit capital, reserves, performance in terms of dividend and rise/fall in NAV during the half year period, percentage of management fees and recurring expenses to the net assets, investment made in associate companies, payment made to associate companies, details of large holdings, returns/annualised yields etc. Thus the investors would get much more information in a concise format.

The mutual funds would now be required to publish the disclosures within one month of the close of each half year. The funds would also be required to publish the half yearly results in at least 7 point font with proper spacing for easy readability.
 

2. Reporting Of Securities Transactions By Directors Of Asset Management Companies


According to SEBI (Mutual Funds) Regulations, the directors of the AMC are required to file a statement of holdings in securities with the trustees at the end of each financial year. Thus they are not required to disclose the details of their purchase and sale transaction in securities during the course of the year.

The Board decided that the directors of AMC should be required to file the details of their purchase and sale transactions in securities on a quarterly basis. As in the case of trustees, they may report only those transactions which exceed the value of Rs.1 lac.
 

3. Time Frame for Despatch of Dividend Warrants 

As per the provisions of Regulation 53(a), all mutual funds are required to despatch dividend warrants to the unitholders within 42 days of the declaration of the dividends. The Board decided that the present requirement of 42 days should be reduced to 30 days so that the investors get dividends within a shorter period of time.

AMENDMENTS TO STOCK BROKERS & SUB BROKERS REGULATIONS

Board approved amendments to SEBI (Stock Brokers & Sub Brokers) Regulations, 1992 to provide for incorporation of Bhatt Committee Report in the regulations pursuant to judgement dt.1.2.01 of the Hon’ble Supreme Court.