SEBI Board Meet: New Laws, New Approach 🌐 | 9 Key Announcements and the One That Didn’t Make It

The Securities and Exchange Board of India (SEBI) wrapped up its December 18 board meeting with a mix of anticipation, reform, and a surprise omission. With proposals touching SME IPOs, performance validations, and a new public consultation mandate, the meeting delivered a robust lineup of changes.

Here are the 9 crucial announcements (from a total of 19) and the one proposal that didn’t pass but left everyone talking. Let’s break it down:

1. Tougher Norms for SME IPOs 💼

Why it matters: SEBI is raising the bar for financial performance and corporate governance to protect investors.

• Profitability Clause: Issuers must show an operating profit (EBITDA) of at least ₹1 crore in two of the last three financial years.
• Loan Repayment: IPO proceeds cannot be used to repay loans to promoters or related parties.
• Lock-In Periods: Promoter holdings in excess of the minimum contribution (MPC) will be locked in for 1 year (50%) and 2 years (remaining 50%).

Example: Imagine a startup trying to raise funds through an IPO. These new rules ensure that the company is financially stable and not using the raised money to bail out its promoters.

Implications: These stringent measures aim to bolster trust among investors, especially retail participants, by ensuring that only well-governed and profitable SMEs enter the public market.

2. The Birth of PaRRVA 🔧

What is it? The much-awaited Past Risk and Return Verification Agency (PaRRVA) is finally here! Think of it as the truth serum for risk-return metrics.

• Who’s Involved? A Credit Rating Agency (CRA) will act as PaRRVA, while a recognized stock exchange serves as the Data Centre.
• Pilot Launch: Initially rolled out on a trial basis.

Good to Know: RAs, IAs, and algo providers can voluntarily verify their metrics. Transparency just got a turbo boost!

Implications: PaRRVA is expected to improve investor confidence by validating historical performance data, ensuring fewer exaggerated claims by financial advisors or algorithmic platforms.

3. Safer Merchant Bankers 📈

The Change: SEBI hiked net worth requirements:

• Category 1: ₹50 crore (previously ₹5 crore).
• Category 2: ₹10 crore (previously ₹5 crore).

Impact: Merchant bankers now need deeper pockets, ensuring only serious players remain in the game.

Why It Matters: This change filters out smaller, potentially under-resourced merchant bankers, enhancing overall market credibility and investor safety.

4. More UPSI Events 🕵️♀️

SEBI expanded the definition of Unpublished Price-Sensitive Information (UPSI):

• Added 17 new events aligned with Listing Obligations and Disclosure Requirements (LODR).
• Flexibility for events from outside the company: Entries into the structured digital database can be deferred by 2 days.

Implications: This ensures comprehensive tracking of potential UPSI leaks, plugging regulatory loopholes and making insider trading harder to execute.

5. Public Consultation Mandated 💬

SEBI’s Big Move: A new regulation mandates public consultations for at least 21 days for any policy change.

Transparency Upgraded: SEBI must disclose why a policy was accepted or rejected. Your voice, your market!

Example: If SEBI proposes changes to mutual fund regulations, stakeholders can voice concerns or suggest enhancements, promoting a more democratic decision-making process.

6. Easier Skin-in-the-Game Norms for Mutual Funds 🌐

Relaxation Highlights:

• Lower Minimum Investments: For employees of Asset Management Companies (AMCs).
• Reduced Lock-In Periods: Especially for resigned employees.
• NFO Funds Deployment: Strict 30-day timelines for fund deployment from New Fund Offers.

Impact: These changes make it easier for AMC employees to invest in their schemes, aligning their interests with those of investors while offering operational clarity on new fund offers.

7. Unlisted Equity for REITs & InVITs 🏡

The Change:

• REITs and InVITs can now invest in unlisted equity shares of service providers like property management companies.
• Liquid fund investments are allowed, but only in schemes with high credit quality.

Impact: Diversification opportunities expand for these investment vehicles, providing them with greater flexibility in fund deployment.

Why It Matters: This move could lead to better returns and operational efficiencies for investors in REITs and InVITs.

8. RPT Norms for Debt-Listed Entities 📉

• Threshold for High-Value Debt-Listed Entities (HVDLE) increased from ₹500 crore to ₹1,000 crore.
• Related party transactions (RPTs) now need a No-Objection Certificate (NOC) from debenture trustees, ensuring tighter checks.

Implications: This enhances oversight, particularly for larger entities, ensuring transparency and safeguarding investor interests.

9. AI Tools: Responsibility Shifted 🤖

SEBI’s New Rule: Regulated entities (like AMCs) using AI tools must:

• Ensure data privacy and security.
• Take full responsibility for the outcomes of these tools, whether developed in-house or procured.

Example: An AMC using an AI-driven portfolio selection tool must guarantee its reliability and transparency.

Impact: This ensures that advancements in AI are utilized responsibly, preventing misuse and protecting investors from algorithmic errors.

10. The Proposal That Didn’t Make It: PUSTA Regulations 🚫

What is PUSTA? The Prohibition of Unexplained Suspicious Trading Activities regulation would have put the burden on traders to prove innocence in suspicious cases.

Outcome: It wasn’t approved. Critics argued it violated natural justice principles, while SEBI reasoned it was necessary to curb tech-savvy wrongdoers.

What’s Next? While the regulation is shelved for now, expect SEBI to revisit this or similar measures to combat evolving trading malpractices.

Final Thoughts 📝

SEBI’s December 18 board meeting reflected a proactive and transparent approach to evolving market dynamics. Whether it’s tougher SME IPO norms, empowering public opinion, or creating innovative validation agencies like PaRRVA, these steps are paving the way for a stronger, more inclusive capital market.

Which reform excites you the most? Let’s discuss in the comments! 💬