Trading in mutual fund (MF) units will fall under the ambit of insider trading norms, SEBI said on Friday. The regulator is mainly targeting MF insiders, fund managers and executives who are in possession of price sensitive information.

Franklin Templeton was a glaring case investigated by SEBI where fund managers had withdrawn money from schemes before they were shut. But there was no clarity on what constitutes insider trading in MFs. Now, MFs will have to form internal guidelines on insider trading, SEBI said.

Also significantly, SEBI has allowed settlement of cash and derivatives segments (on expiry) on a net basis on stock exchanges. Earlier, since it was done separately for both segments, it blocked margin money.

The regulator has also tightened the disclosure norms for companies launching IPOs but opened a new route by which firms can file offer document with limited information and disclose sensitive information closer to the actual IPO process. SEBI’s initial observations on prospectus will be available to investors for 21 days. Issuers will have to disclose details of pricing of shares based on past transactions and past fundraising prior to IPO and disclose key performance indicators (KPIs). It has been done mainly keeping start-ups in mind, who do not have profitability track records.

Among other measures, there will be a framework to facilitate faster pay out of redemptions and dividend to mutual fund unitholders, making the offer for sale process more flexible while making the process of appointment and removal of independent directors also more flexible.

Yash Ashar, Partner & Head — Capital Markets, Cyril Amarchand Mangaldas, said, “SEBI had for several months increased the questioning on pricing of issues and the details of previous issues, including KPIs. They have now made this disclosure mandatory, including for secondary transfers. Some of this may not be known to the issuer. However, they will now have to be provided. Additionally, independent directors are now required to look at the issue price. Whilst one can understand the concerns of the regulator on pricing, pushing this on independent directors may make it challenging for some of them as all of them may not have necessary background to approve this.”

On amendments on confidential filing, Ashar said, “SEBI has now introduced a process to undertake draft filings confidentially as an alternative in addition to the current process. It has aimed to balance the public review process by adding 21 days subsequently. Given the initial filing is confidential, it would have its own benefits and align with the processes in other jurisdictions around the world. While detailed amendments are awaited, one hopes that this subsequent public review will not result in timeline impact on launch of the IPO. Coming at the back end of the process, in volatile markets, every day can be quite crucial.”

SEBI has changed the lock-in requirement for sponsors and sponsor groups from 25 per cent to 15 per cent of the post-issue unitholding of REITs.

Kranti Mohan, Partner, Cyril Amarchand Mangaldas, said, “This will encourage developers and investors to monetise their assets through a REIT structure.”

SEBI has also given its nod to the proposed changes in the existing framework for Offer for Sale (OFS). It has removed the 10 per cent minimum shareholding requirement for non-promoter shareholders to sell shares via the offer-for-sale mechanism. Earlier, non-promoters having 10 per cent stake in the firm and willing to offer shares of at least ₹25 crore were eligible to offer their shares through OFS. The existing cooling-off period of 12 weeks for OFS has been reduced to a range of +2 weeks to +12 weeks based on the liquidity of securities of such eligible companies. The cooling period reduced to a range of plus, -2 weeks to plus, -12 weeks based on liquidity of securities of such eligible companies from the earlier cooling-off period of plus, -12 weeks. OFS mechanism has been made available to unit holders/sellers of listed REITs/ InvITs to offer their holdings.

SEBI also approved a new option for appointment and removal of independent directors from the boards of companies. Once the amended rules are in place, the appointment and removal of independent directors could be done by way of two parameters — threshold for ordinary resolution and threshold for majority of minority shareholders. Currently, the appointment, re-appointment or removal of independent directors is to be made through a special resolution.

SEBI’s board also approved an alternative method for the appointment and removal of independent directors appointed for the first term. Under the alternate mechanism, if the special resolution for appointment of an independent director does not get the requisite majority, then two other thresholds — for ordinary resolution and for majority of minority shareholders — would be tested.

“If the resolution crosses the above two thresholds, in the same voting process, then such a resolution for appointment of the independent director would be deemed to be approved by shareholders. The same threshold will also be applicable for removal of an independent director appointed under this alternate mechanism,” SEBI said.

For a special resolution to be passed, the number of votes in favour should be at least three times those against the resolution.

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