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The Securities and Exchange Board of India (SEBI) on Thursday tweaked the selection criteria for F&O stocks, while easing norms for voluntary delisting, and borrowing by alternative investment funds (AIFs).
The regulator has also set up a working group to enhance investor protection and improve risk management in equity derivatives.
Three different eligibility criteria for a stock’s inclusion in the derivative segment – that includes the stock’s median quarter-sigma order size, market wide position limit and a stock’s average daily delivery value – has been raised 3-3.5x from ₹25 lakh, ₹500 crore and ₹10 crore, respectively.
The regulator expects the number of F&O stocks, which stands at 182, to rise marginally, after the revised guidelines come into play.
Derivatives contracts can be traded only if the underlying stocks meet certain criteria. Such criteria were last reviewed in May 2018.
“We will introduce or extend the concept of product success framework, which means that exchanges can introduce a new index for F&O trading but if it does not pick up in volumes, then it has to be discontinued. This is because if it has thin volumes, it is vulnerable to manipulation.,” said Madhabi Puri Buch, Chairperson, SEBI.
Delisting norms
The regulator has introduced a fixed price process as an alternative to reverse book building process for delisting of companies whose shares are frequently traded. The fixed price offered by an acquirer has to be at least 15 per cent premium over the floor price as determined under the delisting regulations.
An alternate delisting framework for listed Investment Holding Companies (IHC) through scheme of arrangement by way of selective capital reduction has been introduced.
A listed IHC that has at least 75 per cent of their fair value comprising direct investments in equity shares of other listed companies will be permitted to transfer the underlying equity shares held by it in other listed companies to its public shareholders proportionately. The IHC will be delisted if the entire public shareholding being extinguished.
AIFs, FPIs
The Board approved a proposal to permit Category I and II AIFs to borrow for a period of up to 30 days for the purpose of meeting temporary shortfall in drawdown from investors, while making investments. The cost of any such borrowing would need to be charged to the specific investors responsible for the shortfall. Large Value Funds for Accredited Investors (LVFs) approved a proposal to limit any extension of tenure to five years, subject to the approval of two-thirds of the unit holders by value for such extension.
The board has proposed exempting university funds and university-related endowments, registered or eligible to be registered as Category I FPI, from additional disclosure requirements prescribed for FPIs that hold concentrated holdings.
Financial influencers
Brokers and mutual funds should stop using unregulated financial influencers for marketing and advertising campaigns, SEBI said. However, those engaged in investor education will be exempt from the new restrictions.
“The relaxation of delisting regulations, coupled with the option of a fixed price offer, paves the way for a potential increase in delisting activities among companies. Concurrently, the introduction of a regulated digital platform to safeguard investors from the promises of unregulated financial influencers is a commendable step towards investor security,” said Abhiraj Arora, Partner at Saraf and Partners.
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