SEBI relaxes curbs on PE investors

Private equity investors will no longer see their investments mandatorily locked in for a year once an investee company goes public. On Wednesday, SEBI announced that it would extend the lock-in relaxation to Category II Alternative Investment Funds, the bulk of which are PE investors. Category I AIFs, which include funds that invest in early-stage businesses or social and infrastructure projects, already enjoy this relaxation.

Until now, Category II AIFs would have to wait a year after an investee company is listed to exit their investment. AIFs are pooled investment vehicles that collect money from wealthy individuals; it is regulated by SEBI’s Issue of Capital and Disclosure Requirements rules. On Wednesday, SEBI also issued a circular permitting Category III AIFs — which include hedge funds and funds that trade in for short-term returns — to participate in the commodity derivatives market. However, they cannot invest more than 10 per cent of their investible funds in one underlying commodity.

SEBI has also proposed to ease access norms for investments by FPIs by expanding the eligible jurisdictions for grant of FPI registration to Category I FPIs by including countries having diplomatic tie-ups with India, simplifying broad-based requirements, rationalising the fit and proper criteria and permitting FPIs operating under the Multiple Investment Managers structure and holding FVCI registration to appoint multiple custodians.

Ajay Tyagi, SEBI Chairman, said the regulator will bring out a consultation paper to discuss these proposals.

Tyagi said that the regulator also plans to publish a consultation paper on the state of the equity derivatives market in India and invite stakeholder comments. Tyagi said the regulator wants to review the derivatives market framework including product suitability for investors so as to further strengthen the framework in line with the emerging trends and global best practices. “Our investor survey found that retail investors are not aware of the risk component of the derivatives market; some thought derivatives are safer than bonds.”

The ratio of derivatives turnover compared to cash market turnover in India is inordinately high. Also, SEBI will publish another paper to review rules governing credit rating agencies and debenture trustees in the context of the recent downgrade of debt of Reliance Communications, which, according to several investors, should have been identified sooner by rating agencies.

Responding to questions from journalists, Tyagi said the August deadline for about two dozen PSUs to raise their minimum public shareholding to at least 25 per cent may be missed; however, the Ministry of Finance would take a view on this, he added.

On the ongoing investigation at the NSE, Tyagi said SEBI has issued showcause notices to 14 key managerial personnel at the exchange and is reviewing their responses.

“We have started to look into the issue of connivance between NSE employees and brokers. We also want to carry out a forensic audit of the exchange. The previous such audit, commissioned by the exchange and carried out by Deloitte, was only illustrative. We want the new audit to be more comprehensive.”