THE E-NEWSLETTER
Vol. XI | July 2020 – September 2020
Welcome to this issue of CLD NUALS Securities Law e-Newsletter In this issue, as the lead article, we have a Any feedback or suggestions would be special interview with Mr. Abhinav valuable in our constant pursuit to improve Kumar, Partner, Cyril Amarchand the e-newsletter and ensure its continued Mangaldas, in which he shares his insights success among the readers. on varied topics and contemporary matters Please feel free to send any feedback, of importance. suggestions or comments to us at Accompanying the aforementioned we [email protected]. have literary contributions from other Regards professionals and students. In this edition, we have also captured the key regulations Editorial Team and circulars issued by the SEBI for the Securities Law e-Newsletter period under review.
SECURITIES LAW
The e-Newsletter
Securities Laws: Vol. XI, October 2020
All views expressed are those of the authors. The newsletter is for private circulation and not for sale.
Index
THE INTERVIEW ...... 2 THE PROBLEM OF MICROCAP STOCK FRAUD IN INDIA...... 5 OBLIGATIONS OF CONTINUOUS DISCLOSURE: ANALYSIS OF GLOBAL TREND & LESSONS FOR THE INDIAN SECURITIES MARKET ...... 8 MYSTERY BEHIND SEBI ORDER: WHATSAPP LEAK CASE ...... 11 SEBI REGULATIONS ...... 14 SEBI CIRCULARS ...... 18
1 SECURITIES LAW E-NEWSLETTER
THE INTERVIEW
Abhinav Kumar, Partner, CAM has over 10 years of experience and focuses on a variety of capital markets transactions, including initial public offerings, follow-on offerings, rights issues, QIPs and preferential issues. Chambers and Partners 2018 has recognized Abhinav as an “up and coming” capital markets lawyer and noted that he is “extremely responsive and gives nuanced advice”. Indian Business Law Journal (2017-18) has recognized Abhinav for his “constant and careful explanation, and strong Mr. Abhinav Kumar advice on negotiations and legal requirements”. He is also recognized as a notable practitioner by IFLR 1000.
1. What changes do you expect in the Indian capital markets ecosystem from investment perspective in light of the Covid-19 pandemic and the policies of Government? I think SEBI has taken a proactive and holistic approach in assisting Indian corporates and business trusts in raising capital during challenging times of Covid-19. Further, SEBI has actively engaged with market players including intermediaries in addressing challenges faced by them in meeting regulatory compliances and requirements and has promptly provided relaxations. Going forward, we expect SEBI to continue to be active in easing accessing capital markets and extending relaxations in meeting regulatory compliances and requirements. Some of the exciting developments like framework for foreign listing, further easing of ITP framework are also expected to happen in the near future which would broaden the contours of the Indian capital markets.
2. What is your take on recent amendments by SEBI to Issue of Capital and Disclosure Requirements Regulations 2018 in respect of the Preferential Issues and Rights Issues? As discussed earlier, SEBI has taken a proactive and holistic approach in assisting Indian corporates and business trusts in raising capital during challenging times of Covid-19. I have set out below quick summary of amendments and my thoughts: a) Rights issue related relaxations: In April itself, SEBI had provided certain significant relaxations with respect to fast track and minimum subscription related requirement to enable companies to undertake rights issue in a timely manner in the most equitable manner. Subsequently, in May, SEBI also relaxed requirements to allow participation by non-ASBA applicants and participation by shareholders holding shares in physical form in addition to certain procedural requirements. Due to such relaxations, 8 companies have raised INR 592,920 million from April 1, 2020 and September 1, 2020. Further, recently, SEBI has overhauled disclosure requirements for rights issues and has also relaxed various substantive requirements minimum subscription which I think will encourage listed companies to raise capital through rights issue.
2 SECURITIES LAW E-NEWSLETTER
b) QIP related relaxations: In June, SEBI reduced the time period gap required between two consecutive QIPs by listed entities from 6 months to 2 weeks. Unlike other relaxations, this is not a temporary relaxation and we are certain that some of the companies which have already accessed QIP route during the period between April and September 2020 would avail of this relaxation to meet their additional funding requirements and in the long term, large number of companies would avail of this relaxation as QIP is the fastest mode to access large number of sophisticated investors. c) Preferential issue related relaxations: Due to resultant depressed valuation and stock price consequent to Covid-19 and challenges faced by companies having stressed assets, in June, SEBI relaxed the pricing requirements for companies having stressed assets and allowed such companies to price shares on the basis of volume weighted average price during 2 weeks (and not considering 26 weeks) preceding the relevant date subject to certain conditions. Further, in July, SEBI provided an option to companies with frequently traded shares to choose volume weighted average price during 12 weeks preceding the relevant date (instead of 26 weeks preceding the relevant date) for determination of floor price for preferential issues. Both of the aforesaid relaxations are subject to lock-in of 3 years. These relaxations have enabled 3 listed companies to raise INR 74,540 million between July 1, 2020 and August 31, 2020. The aforesaid relaxations have allowed listed companies to explore preferential issue as a viable option on the basis of realistic floor price. d) Public issue related relaxations: In June, SEBI extended some of the rights issue related relaxations for fast track requirements to FPOs as well. Due to these relaxations, Yes Bank Limited raised INR 15,000 crore through the further public offering in July 2020. Prior to the FPO by Yes Bank, the FPO route has been used by very few companies with a majority of FPOs being undertaken by public sector companies.
3. In August 2020, SEBI released a consultation paper which proposed to recalibrate thresholds for minimum public shareholding in companies which undergo Corporate Insolvency Resolution Process (CIRP). What are your views on the SEBI's proposals in the consultation paper? I partially agree with option 2 proposed in the consultation paper which is that the company, relisting after CIRP or on a continuous basis, should have minimum 5% public holding on the day of listing and on a continuous basis, it should have minimum public shareholding of 5%. However, the current Regulation 19A(5) of the SCRR should continue to apply which will require meeting 10% requirement in 18 months and 25% in 36 months. I also agree with the proposal in consultation paper to relax the one year post listing lock-up on the acquirer as it would also help in meeting 10% and 25% requirement. The rationale for the above is that the companies under CIRP are already treated differently from other listed companies and accordingly, there are already extensive carve outs for such companies under SEBI and other laws.
3 SECURITIES LAW E-NEWSLETTER
In relation to minimum public shareholding requirements, Regulation 19A(5) of the Securities Contracts (Regulation) Rules, 1957 (“SCRR”) introduced in July 2018 already provides a relaxation for companies under CIRP to bring back public shareholding to 10% in 18 months (no such provision for other listed companies) and 25% in three years (one year for other listed companies) which was introduced keeping in mind the peculiar challenges of CIRP. I believe that SEBI’s concerns highlighted in the consultation paper is fair as one of the companies under CIRP, post relisting, has seen significant volatility which could potentially be due to very low public holding. Whilst this may not necessarily be a norm for all such companies in the future, however, a suitably low public shareholding threshold may still be required for such companies given the background of such companies and to protect existing public shareholders of such companies. Two of the options proposed under the consultation paper for companies under the CIRP entail achieving or maintaining 10% public shareholding on the date of relisting and within 6 months of relisting/date of falling below 10% respectively. We believe that the companies under CIRP will genuinely struggle to have 10% public shareholding from the date of relisting or in a short period post relisting especially in cases where a single acquirer acquires majority of shares under the CIRP including large number of shares held by public under the delisting offer. Also, new public investors may not have confidence to invest in companies under CIRP and they may wait for a credible listing and business track record to build before investing in such companies. Additionally, companies relisting after CIRP cannot be compared to a normal IPO companies and therefore 10% should not be mandated at the time of relisting. Further, requiring meeting 10% within 6 months of relisting or from the date of falling below 10%, as applicable, may also have similar challenges.
4. How would you describe your professional journey from being a B.A. LL.B. (Hons.) graduate from WBNUJS, Kolkata to being a Partner at Cyril Amarchand Mangaldas? It has been a very exciting journey at Cyril Amarchand Mangaldas. I had joined at Cyril Amarchand Mangaldas straight after passing out through campus recruitment. Whilst internships during 5 years of law provides some insight into a law firm life, one learns everyday working at a law firm and each day brings with it exciting challenges. The journey has been very fulfilling as there is a lot of stress on meritocracy and strong brand name brings high profile and marquee clients and transactions at Cyril Amarchand Mangaldas. Our Managing Partner, Mr. Shroff is a visionary and working under his guidance is an experience which has no match amongst Indian law firms.
5. The study of Securities Law requires a thorough understanding of Capital Markets. A lot of law students face difficulty in learning about capital markets in Law Schools. What advice would you give to such students aspiring for a career in Securities Law?
4 SECURITIES LAW E-NEWSLETTER
I think unlike some of the other practice areas like M&A, general corporate and to some extent litigation, capital markets and financing are very market practice driven and regulatory interaction based practice areas. Whilst students could have theoretical knowledge basis reading of existing securities law related legislations, to truly understand the depth of capital markets practice, students need to have formal practice based training. I would suggest that law schools should approach law firms with established capital markets practice to guide on the securities law curriculum by working closely with professors and have classes taken by professors and practitioners to hone capital markets skills in students. I am sure law firms will be more than happy to collaborate with law schools to ensure that well trained and entrenched capital markets lawyers come out of campus.
- Abhinav Kumar
THE PROBLEM OF MICROCAP proportions of a particular security at STOCK FRAUD IN INDIA low prices. Thereafter, a state of inflation in the price of the security is By – Sezal Mishra, Fourth Year, National simulated through the issuance of a Law Institute University, Bhopal series of falsified and misleading INTRODUCTION statements regarding its value. The sudden surge in share price triggers a Microcap stock fraud is a collective name mindset of “FOMO” or “Fear of for several fraudulent schemes used in the Missing Out” in unwary investors who stock market with the intention to are lured in at the opportunity of earning manipulate the share prices of microcap quick and easy money. This companies. These schemes are usually psychological technique further implemented on “Penny Stocks” which, in accelerates the price inflation at work essence, are shares of a small public within the market. Once the pump has company of minimal financial value. In reached its peak, the second phase of India, stocks which trade under Rs 10 fall the plan is put into practice. In the under this category. The limited disclosure second phase or dump phase, con of information with regards to the penny investors rapidly sell their shares at an stocks coupled with their highly volatile elevated price leading to a sudden nature makes them an ideal choice for price deflation in the price of the security. manipulation devices. Common examples The scheme comes to an end by of microcap stock frauds are, generating heavy losses for innocent Pump and Dump – This scheme investors. involves artificially manipulating the Fraudulent Market Tips - It is a price of a security to ensure a wrongful common practice for investors with gain. The plan is conducted cautiously limited knowledge of the stock market by con-investors in two phases – the to rely on the tips and recommendations pump phase and the dump phase. In the provided by investment advisers and first phase, the fraud investors buy large
5 SECURITIES LAW E-NEWSLETTER
stockbrokers. In this scheme, with the sole objective of inflating, unregistered investment advisors lure in depressing, maintaining, or causing any investors at the prospect of earning fluctuation in the value of such security. huge and easy profits and provide initial The Regulation also proscribes tips in order to ensure subscription from advertisements that are misleading in nature the investors. Soon after the and have the power of influencing the subscription fee is paid to them, these decision of the investors. unregistered advisers remove all forms Secondly, in its attempt at creating an of contact, leaving the investors efficient securities market amidst the digital cheated. This scheme is a double-edged age, SEBI has employed enforcement tools sword for unwary investors. They not such as an Integrated Market Surveillance only lose out on their subscription fees System (“IMSS”) since 2013 and a Data but also encounter huge investment Warehousing and Business Intelligence losses based on erroneous System (“DWBIS”) since 2011. The IMSS recommendations provided by the con and DWBIS collect information across investment advisors. depositories and exchange systems. They SEBI’S EFFORTS IN COMBATING are helpful in the analysis of data for the FRAUDS speedy recognition of securities law violations such as insider trading, front Entrusted with the purpose of protecting the running, or price manipulations. interests of investors, SEBI has adopted a two-pronged approach to combat While SEBI’s attempts at combating fraudulent practices such as pump and microcap securities frauds appear dump result in hefty losses to the innocent impressive in theory, upon scrutiny, it investors and considerably damage their becomes clear that these attempts are half- interest and faith in the securities market. hearted and inefficient. Provisions of the SEBI Act and the PFUTP Regulations Firstly, several laws and regulations have prohibiting price manipulation have proven been enacted to curb the price manipulation to be mostly a paper tiger owing to their of securities in the market. Section 12A of general and vague nature. Fraudulent the SEBI Act prohibits the use or schemes are not targeted individually. employment of any fraudulent device or Moreover, the advent of online trading has scheme while dealing in securities. rendered these laws ineffective while the Additionally, the Prohibition of Fraudulent number of microcap frauds increases by the and Unfair Trade Practices Relating to day. Securities Market Regulations, 2003 (“PFUTP Regulations”) have been enacted THE NEED FOR A REGULATION to specifically deal with fraudulent conduct Traditionally, penny stocks attracted such as insider trading or price investors in the Indian Securities Market manipulation. Regulation 4 specifically owing to their minimal prices and the prohibits any act or omission that may possibility of extremely high returns. Since manipulate the price of a listed or unlisted these stocks are issued by micro-cap security or any conduct dealing in securities companies which have a vast potential for
6 SECURITIES LAW E-NEWSLETTER
growth, the shares typically yield generous websites like Telegram, WhatsApp, or benefits even for small investors. The past Discord. few decades, however, have seen an influx Unwary Investors - SEBI has so far of con-investors and fraudsters in the failed to recognize that such fraudulent securities market who take wrongful conduct exists in the market arises advantage of the risks associated with partly due to the limited knowledge of penny stocks and defraud innocent investors about the risks of online investors leading to huge losses. trading and transactions. No major steps As early as 1990, the US Congress have been undertaken towards recognized the need to supplement the educating and warning the investors to remedies provided for fraudulent schemes take notice of the deceptive devices at and devices under the Securities Exchange work within the market in order to Act, 1934, due to the widespread abuse of create a sense of awareness and caution. penny stocks. Consequently, the Penny The enactment of a regulation explicitly Stock Reform Act was enacted along with aimed at combating fraudulent schemes Penny Stock Disclosure Rules, 1990. The in penny stocks can be used to bring the Penny Stock Disclosure Rules aimed to risks and hazards of such transactions to provide a caveat to the unsuspecting the notice of the investors and prevent investors of the fraudulent activities and the them from falling into the traps of risks associated with penny stock fraudsters. transactions. The Rules make it mandatory A study of the Indian Securities Market for the broker-dealers to provide certain makes it evident that microcap stock fraud information about penny stocks to their has continued more or less unabated customers prior to the completion of the through to the present day and it is expected sale. The need for implementation of a that the same will assume a much greater similar regulation on the subject in India is significance in the next few years exposing justified on the following grounds, an even larger number of investors to online The Advent of Online Trading - The frauds. It is high time that the Securities digital age has facilitated the ever- Board in India follows the steps of its increasing use of the internet in the American counterpart and enacts certain trade of securities. Investors are now specific regulations and detailed guidelines being duped over the internet. Con to tackle and put a stop to such deceitful investors communicate misleading conduct successfully. statements via online forum websites CONCLUSION AND SUGGESTIONS and groups on social media servers such as Telegram or Discord. The laws in The Securities and Exchange Board of effect at present are significantly India Act, 1992 was enacted to create a underequipped to deal with such frauds transparent environment for securities in online trading committed by trading so as to ensure the overall protection individuals or small unrecognized of investors and the growth of the market. groups colluding through social media The Act sought to increase the confidence of the investors in the securities market.
7 SECURITIES LAW E-NEWSLETTER
Unfortunately, the lack of adequate securities market while protecting their regulation over internet trading and funds from deceptive schemes. fraudulent devices (such as pump and dump OBLIGATIONS OF CONTINUOUS schemes) have defeated the very purpose DISCLOSURE: ANALYSIS OF US TRENDS for which the Board was constituted. While & LESSONS FOR THE INDIAN SECURITIES the efforts of SEBI in employing MARKET intelligence systems for regulation of online trading are commendable, a large By – Prapti Bhattacharya, Third Year, proportion of microcap stock fraud cases go Asian Law College, Noida unnoticed and unpunished. The main reason appears to be that India does not An administrative and regulative setting have a set of regulations aimed specifically which backs up potent and prosperous at eliminating such deceitful conduct like secondary market disclosures is highly the Penny Stock Act or Rules operating choleric for a well-organized and within the USA. operational securities market. Current disclosures by listed companies are being Apart from a regulation targeting the critically combed down by regulators, stock subject, it is also recommended that, firstly, exchanges and market participants to check active steps must be taken to caution out whether detailed and meticulous investors on the extremely risky nature of disclosures of all valid information are penny stocks and educate them on the being chalked out by the listed entity up-to fraudulent schemes prevalent in the stock the minute. In the meanwhile, it is also quite market before they make an investment. necessary for companies to confirm that Secondly, setting up of dedicated websites their business developments and growths to highlight the hazards of online convert to definite regulatory disclosures. investments and provide some practical tips on the investigation of stocks and methods A contemporary example of the relevance to identify fraudulent conduct can prove to of secondary market disclosure is the be highly beneficial. Lastly, the Facebook case. Last year, the US Securities implementation of a stricter penalty regime and Exchange Commission (“SEC”) can act as a deterrent for similar conduct in declared charges against Facebook Inc. for microcap stocks in the future. It is making ambiguous disclosures in the suggested that strict liability with heavy recurring filings against the risks referring fines should be imposed on anyone who to exploitation of its user information by orchestrates or participates in such schemes third parties. The SEC purported that in and benefits financially, whether directly or public disclosures, Facebook presented the indirectly. risk of misusing the user data as “merely hypothetical”, when they had prior Penny stock fraud over the Internet knowledge that a third-party had potentially presents one of the most serious squandered Facebook user data in reality. threats to the stability of Indian securities The SEC press release gave a statement that markets and it is hoped that effective steps Facebook has decided to pay $100 million are undertaken by SEBI in the near future to negotiate the charges. to maintain investor confidence in the
8 SECURITIES LAW E-NEWSLETTER
BACKGROUND STORY 2018, Facebook kept on saying that, any failure to stop or reduce security breaches Facebook had perceived the unauthorized and inadmissible access to or leaking of use of user details as a material risk and had their user data could result in the complete been headlining this risk in all public filings loss or maltreatment of such data, which since inception of initial public offering had the potential of sabotaging their (“IPO”) back in 2012. In its IPO prospectus, business and dwindling their cut-throat Facebook notified that if third parties or competitive position. platform developers fail to adopt enough data practices or fail to follow up with their In accordance with the SEC complaint, on terms and conditions, or if any fissure March 16, 2018, when Facebook publicly occurs in the third party networks, then accepted about the transgression of its Facebook’s users’ data may be imprudently policy for the first time, the share price of pervaded or unveiled. The prospectus gave Facebook dropped down exponentially. an additional statement as well that such Repeatedly, the SEC raised objection to the instances could have a detrimental and issue that neither any valid proof of user inimical effect on the business, prestigious data infringement nor the raised red flag influence and commercial results of could make Facebook to evaluate how the Facebook. risk factor disclosure in SEC filing must be changed and they continued making a The routine reports which are being sent by material omission in its disclosures. the listed companies in the US to the SEC, Ultimately, Facebook pronounced to pay those consist of details of risks discerned by $100 million to adjust the charges. the management. Following this, Facebook included disclosure in the risk factors ANALYSIS AND LESSONS FROM similar to that of the prospectus, in its THE INDIAN SECURITIES MARKET periodical and annual filings with the SEC Principles discussed above regarding from 2012 to 2015. charges of SEC are admissible to the Indian The grievance filed by SEC states that in securities market as well and through the December 2015, newspaper articles following analysis we will try to imbibe few published that a research company got the lessons too. access to millions of Facebook users’ data 1. Exhaustive Inspection of Risk Factors provided generally on the social media platform and such data were used in the Issuers in India should revise the risk American elections. Afterwards, one of the factors in offer documents profoundly to employees of Facebook contacted with the realize whether they are showing the risks company that obtained such data and accurately. Offer documents are inferred that all of those data were gathered particularly drafted to include a vast range and transferred to the research company of risk factors, to cover most probable infringing Facebook’s policy for third-party episodes that may create a substantial app developers. negative effect on the company. However, the Facebook complaint showcases that Although, in its sporadic filings to the SEC there is a massive distinction between a between January 28, 2016 and March 16,
9 SECURITIES LAW E-NEWSLETTER
potential or hypothetical risk and a risk that comprehensive overview to investors on the has actually come into effect. Issuers must yearly business of the company and the conduct an overall audit of risk factors to threats faced by the company. estimate whether any of the risks have In India, Regulation 35 of the SEBI Listing actually exteriorized so that the related Regulations recommend listed entities to disclosure can be suitably modified. submit an ‘Annual Information Additionally, the risk management scheme Memorandum’; the SEBI has not of companies should also take part in the manifested this provision yet. drafting of offer documents and continuous disclosure requirements for companies, SEBI mentioned that the listed entities especially in case of banks, NBFCs. should consider the following Moreover, if a specific breach has already specifications to determine whether a occurred, it must be explicitly provided in particular event/information is material or the offer documents. not: 2. Rearrange internal management and a) An event/information whose omission functions may result in discontinuity of information publicly available; Ordinarily, only the senior management of a company is engaged in the drafting work b) If the Board of Directors of the listed and scrutinizing the disclosures in the offer entity, consider the event/information as document. Mostly the legal and finance material. specialization teams are frequently Annual updates to the offer document will involved in drafting the disclosure. Internal give ample chances to investors to lay their management and processes must be hands on the updates and risks of respective reorganized to secure that fact the business business ventures and grant them to make a developmental statistics are properly noted factual assessment of the company. This down in the document, and the company would definitely create a positive trend in must comply with the thorough the market where all sorts of information communication about risk with the team about the company would be compiled at which will be better for wrapping up the one place and it would be easily accessible disclosure. Companies which take up to all stakeholders. It would also act as a follow-on offerings, should precisely profitable regulatory instrument for SEBI examine the disclosures making sure that and the stock exchanges to invigilate the the transformations and transitions to the disclosures and investigate if there are any business are accurately emulated. accusations of non-disclosure of valuable 3. Remodeling continuous disclosure information. essentials Before this strict compliance, the entities As described earlier, the SEC has suggested were required to make disclosures at the for listed companies in the US to improvise time of occurrence and after the cessation their offer documents supplementing with of the event and the promoters had a chance risk factors and the business section, in case to make personal profits by inflating the of periodic filings. This supplies a stock value before particular events through
10 SECURITIES LAW E-NEWSLETTER
this selective information, but now listed SEBI noted articles in mainstream media entities have to regularly update the alleging the circulation of “Unpublished information with respect to the material Price-Sensitive Information” (UPSI) about events on continuous basis, until the different companies like Wipro Ltd, Asian event/information is closed with detailed Paints and Mind Tree Ltd among private description. WhatsApp groups, which includes the Market Chatter group, before its official MYSTERY BEHIND SEBI ORDER: statements published on the stock WHATSAPP LEAK CASE exchange. By – Mahek Jain & Sunny Verdani, Fourth Section 3(1) of SEBI (Prohibition of Insider Year, School of Law, UPES, Dehradun Trading) Regulations, 2015, prohibits the “The Market is a Device for Transferring communication or procurement of UPSI Money from the Impatient to the Patient.” relating to a listed corporations or security, or a proposal to be listed by any entity, - Warren Buffet including other insiders. WHATSAPP LEAK CASE: AN Interim orders were passed on all those OVERVIEW corporations whose UPSI was leaked, and In the case of 'WhatsApp Leak' the SEBI the regulator took a tough stance on had indeed recently issued three orders, corporations that attempted to identify any covering all front page stories in media kind of entity responsibility for any of the since November 2017. The social media leaks. SEBI ordered those corporations to stage is known for sweeping marvel and, in conduct independent investigations in order spite of the significant development which to recognize those responsible for such this stage has carried with it by giving leakage. SEBI also continued its simple access to information, it has still investigation and conducted a search and lead to private data being abused. While seizure operation involving 26 setting our desires for a proficient security companies belonging to the WhatsApp law system along with entrenched data group 'Market Chatter' and seizing around privacy laws, this article fundamentally 190 devices and records. But due to examines the order of the Securities inherent technological limitations, it could Appellate Tribunal (SAT). not trace the origin of the WhatsApp messages. Nevertheless SEBI found that This article will be a discussion and the information which convicted Mr. Vora analysis of the SEBI's Order No. was circulated through the messenger that Order/BD/NR/2020-21/7591-7592 dated was exactly similar to official 29.04.2020. announcements made later by the listed FACTUAL BACKGROUND companies. The said Notice has argued in its defence that the information is "Heard on This case involves the circulation of the Street." Unpublished Price Sensitive Information [SEBI Regulation 2(n) (Insider Trading Both Shruti Vora and Neeraj Kumar Prohibition), 2015]. In November 2017, Agarwal were considered as insiders under
11 SECURITIES LAW E-NEWSLETTER
Regulation 2(g) and were held guilty of on the basis of confidential price-sensitive insider trading under Section 12(A)(d), information about the company's operations 12(A)(e) and 15(G) of the SEBI Act, 1992. which they possess but which is not open to others.” WHATSAPP GROUP PARTICIPANTS TAGGED AS “INSIDERS” UPSI as defined under Regulation 2(n) of SEBI (Prohibition of Insider Trading) 1. The order passed by SEBI provides a Regulations, 2015 means any information new threshold of evidence, which is, that is not generally available, intentionally “unknowingly without benefit to or unintentionally, concerning a anyone, passing unpublished price corporation or its securities and that is sensitive information” — as a ground likely to impact the prices of securities that for charging someone under insider may not incorporate: trading. 1. Financial outcome 2. The SEBI order will also affect the sharing of earnings-related information 2. Modification in capital Structure through WhatsApp and the liability of 3. Changes to key managerial the participating members. While this personnel etc. order deals specifically with data sharing, it can also have an adverse SEBI was also seeking answer as to who effect on persons as they are using such shall be deemed to be an insider as defined information for trading. under Regulation 2(g) of SEBI (Prohibition of Insider Trading) Regulations, 2015, any 3. The order is now considered to be entity who's had access to Price Sensitive gentle reminder to all the market Information or has it shall be deemed as a participants that insider trading "insider." regulations are not only applicable to the act of “trading”, but also to the act SEBI REGULATOR’S CONCLUSION of communication and transmission of 1. The leaked information containing the such details. income, PAT, date/season of So to come to the point, it is to be correct to declaration of results, was actually say that individuals who are part of such equivalent to the ensuing declarations, WhatsApp groups may get classified as and the failure of the underlying insiders and be subjected to strict corporations to pursue the evidence / communication restrictions on such as wellspring of the break is extraneous in forwards. ensuring that all information was UPSI. UPSI: UNPUBLISHED PRICE 2. There was also no proof that this SENSITIVE INFORMATION information was focused on market research based on publicly available The Patel Committee in 1986 in India knowledge, and that such market defined Insider trading as, “Trading in the research was actually open to Company's shares by individuals in or individuals on an unbiased premise; connected to the Company's management
12 SECURITIES LAW E-NEWSLETTER
3. The accused were well-educated the slightest impact on the securities persons but he still did not raises an market, also one of the reason as to both the object and acted as 'a tool in the accused were considered to be communications process' of price- acknowledged with the working of sensitive information. Moreover did not securities market and all its related aspects raise any concern when the resulted therefore pleading ignorance to any of such which were circulated by them exactly information will not be taken into account matched the actual results when by SEBI Regulator. announced. WAY FORWARD SEBI regulator therefore has held both the Security Exchange Board of India recently accused as insiders and the information sought to capture unstructured data analysis circulated by them as UPSI. It is the people technologies to counter market who possess the information as interpreted manipulation in terms of future initiatives by the Regulation 2(g) the one in possession as the challenge of ineffectiveness of of the sensitive information shall be structured data analysis. SEBI is enhancing deemed to be an insider. its own social media analysis and Heard on Street is the shield used to declare surveillance with the help of artificial any information as being price sensitive or intelligence and big data analytics. not. When any information is transferred The amendments which is introduced with uniformly and becomes generally available respect to the SEBI (Insider Trading it is termed to be “Heard on Street”. Such Prohibition) (Amendment) Regulations, information shall be heard loud and clear in 2018 is a great initiative towards curbing any public domain and not in any encrypted UPSI leakage. These were intended to format accessible by end to end user. strengthen internal controls, maintaining Limited Whatsapp groups would not the database of persons involved in constitute Heard on Street information. generating or accessing UPSI, setting up In the present case the SEBI Regulator internal processes for investigating UPSI concluded that, the information was: leakage and whistle blowers protection.
Neither available generally nor could be Although the regulator would provide a adjudged by any available documents of framework, it can monitor and take action the company. against non-compliance as well. However it will remains the prime responsibility of The information was circulated in a companies to implement these measures. limited Whatsapp group.
It is a well-recognised activity among the brokerage community, but it is to remember that SEBI regulates all the information that is being transferred and that may have even
13 SECURITIES LAW E-NEWSLETTER
SEBI REGULATIONS
SECURITIES AND EXCHANGE BOARD OF the open offer process. This sub-regulation INDIA (SUBSTANTIAL ACQUISITION OF provided that in case of the inability of the SHARES AND TAKEOVERS) (THIRD acquirer to make payment to the AMENDMENT) REGULATIONS, 2020 shareholders who have accepted the open offer within the stipulated period, the SEBI, vide its notification dated July 1, acquirer shall also pay interest for the 2020, amended the Securities and period of delay at the rate of ten per cent per Exchange Board of India (Substantial annum. However, if such delay cannot be Acquisition of Shares and Takeovers) attributable to any action or omission of the Regulations, 2011 (SAST Regulations). acquirer, or if the reasons or circumstances Firstly, an additional proviso was added to leading to such delay are beyond the control the regulation 17(1) of the SAST of the acquirer, SEBI may grant a waiver Regulations, pertaining to the creation of an from the payment of such interest. Further, escrow account in accordance with the sub-regulation 11A also provided that the prescribed conditions. This proviso stated payment of interest shall be without that in the instance of an indirect prejudice to any action of the Board taken acquisition, an amount equivalent to under regulation 32 of the SAST hundred per cent of the consideration Regulations (concerning the power to issue payable in the open offer shall be deposited directions) or under the SEBI Act. Finally, in the escrow account if the public the amendment omitted the words “other announcement has been made in than through bulk deals or block deals” accordance with regulation (13)(2)(e) of the from regulation 22(2A) of the SAST SAST Regulations. Secondly, a new Regulations, that provides for completion proviso was also added to the regulation of the acquisition. 17(1)(c) of the SAST Regulations, which enlisted the forms of escrow account SECURITIES AND EXCHANGE BOARD OF referred to in regulation 17(1). While INDIA (ISSUE OF CAPITAL AND regulation 17(1)(c) permitted the aforesaid DISCLOSURE REQUIREMENTS) (THIRD escrow account to be in the form of a AMENDMENT) REGULATIONS, 2020 deposit of frequently traded and freely SEBI, vide its notification dated July 1, transferable equity shares or other freely 2020, amended the Securities and transferable securities with appropriate Exchange Board of India (Issue of Capital margin, the new proviso did not permit the and Disclosure Requirements) Regulations, deposit of securities with respect to indirect 2018 [ICDR Regulations]. Regulation acquisitions where public announcement 164B, pertaining to optional pricing in has been made in accordance with the preferential issues, was inserted wherein it regulation (13)(2)(e) of the SAST was provided that in the instance of Regulations. Thirdly, the amendment frequently traded shares, the price of the inserted a new sub-regulation 11A under equity shares to be allotted pursuant to the regulation 18 of the SAST Regulations preferential issue shall be determined by which provided for the other procedures in either regulation 164, pertaining to pricing
14 SECURITIES LAW E-NEWSLETTER
of frequently traded shares or regulation “principal officer.” It also introduced 164A, pertaining to pricing in preferential certain additional compliance issue of shares of companies having requirements. An IA that is not a natural stressed assets, as opted for. Furthermore, person is required to have a principal the regulation also laid down a pricing officer, as defined. The concept of method stipulating that the aforesaid price “representatives” was widened to “persons of the equity shares must not be less than associated with investment advice,” as higher of the average of the weekly high defined. Such principal officer, persons and low of the volume-weighted average associated with advice as well as partners of price of the related equity shares quoted on an IA, must comply with the qualification, the recognized stock exchange during either experience and certification requirements the twelve weeks preceding the relevant as provided under the substituted regulation date or the two weeks preceding the 7. relevant date. Regulation 164A also Moreover, in addition to the IA, the SEBI provided that securities allotted on a can now issue directions against the preferential basis using such pricing principal officers as well as persons method shall be locked-in for a period of associated with investment advice. The three years and that this pricing method can minimum net-worth requirements were also be availed for the issue between July 1, increased by the amendment from twenty- 2020, or the date of notification of this five lakhs to fifty lakhs, for non-individual amendment, whichever is later, to IA and from one lakh to five lakhs, for December 31, 2020. Moreover, the individual IA. Existing IAs were provided regulation also clarified that the allotments with a period of 3 years to meet this that arise out of the same shareholders requirement. Regulation 15A was also approval shall follow the same pricing inserted wherein an IA is entitled to charge method. fees for his services. An additional SECURITIES AND EXCHANGE BOARD OF requirement of submission of the report of INDIA (INVESTMENT ADVISERS) IA’s annual compliance audit to SEBI was (AMENDMENT) REGULATIONS, 2020 also inserted. Regulation 19(1)(d) makes the execution of an agreement mandatory SEBI, vide its notification dated July 3, between the IA and the client. Such an 2020, amended the Securities and agreement must incorporate the terms and Exchange Board of India (Investment conditions as specified by SEBI. The Advisers) Regulations, 2013 [IA amendment also introduced a client level Regulations].The amendments shall come segregation of advisory and distribution into force on the ninetieth day of activities by amending regulation 22 of the notification. The amendment inserted IA Regulations. Distribution services certain definitions in the IA Regulations cannot be provided by an individual IA. inter alia, “assets under advice,” “CPE – Furthermore, the family of an individual IA Continuing professional education,” shall not provide distribution services to the “family of client,” “family of individual client advised by the individual IA and no investment adviser [IA],” “persons individual IA shall provide advice to the associated with investment advice,” and
15 SECURITIES LAW E-NEWSLETTER
client receiving distribution services from notices indicating the substance of the the family of the individual IA. probable charges and enforce the same. The Additionally, a non-individual IA must also rationale for this decision given in a SEBI maintain client level segregation at the board meeting, was that in order to save group level for investment advisory and time, instead of issuing the settlement distribution services. Regulation 22A was notice a paragraph shall be included in the inserted to provide for the implementation show cause notice informing the notice of advice or execution. It stipulated that an about the option to file a settlement IA may provide implementation or application. execution services to the advisory clients in the securities market provided that no SECURITIES AND EXCHANGE BOARD OF INDIA (LISTING OBLIGATIONS AND consideration including any commission or DISCLOSURE REQUIREMENTS) (SECOND referral fees, is received, directly or AMENDMENT) REGULATIONS, 2020 indirectly, at the IA’s group or family level for the said service. Moreover, such SEBI, vide this amendment made certain services may be provided only through changes to Regulation 42 of the Securities direct schemes/products in the securities and Exchange Board of India (Listing market. No implementation fees shall be Obligations and Disclosure Requirements) charged by the IA or group or family of IA Regulations, 2015, which deals with from the client and the client shall not be Record Date or Date of Closure of Transfer under any obligation to avail such offered Books. services. Notably, in order to determine whether a SEBI (SETTLEMENT PROCEEDINGS) shareholder is qualified for benefits on a (AMENDMENT) REGULATIONS, 2020 particular date, a listed entity fixes a record date. The shareholders that are qualified SEBI, vide this amendment, revisited the will receive benefits like dividend, bonus SEBI (Settlement Proceedings) shares, rights issue etc., announced by the Regulations, 2018 which, keeping in mind listed entity. A listed entity was previously the interest of investors, provided for a tool required to intimate the record date to the to ensure speed and efficiency in resolution Stock Exchange, merely where the entity of disputes, as the courts, tribunals and was listed. However by virtue of this various adjudicatory bodies of our country amendment a listed entity is required to are already significantly overburdened. make such intimation not only where it is The changes brought forth by this listed on the stock exchange but also where amendment include the extension of the stock derivatives are available on the stock timeline for remittance of the settlement of the listed entity or where listed entity’s amount under Section 15(2)(a), omission of stock form part of an index on which using a demand draft as the means of derivatives are available. submission of the settlement amount. Further, the amendment also modifies one Furthermore, the whole Chapter VIII was of the purposes for which such intimation omitted by this amendment, which would be required. empowered SEBI to issue settlement
16 SECURITIES LAW E-NEWSLETTER
SECURITIES AND EXCHANGE BOARD OF the date of their publication in the Official INDIA (EMPLOYEES' SERVICE) Gazette. The first amendment is made in (AMENDMENT) REGULATIONS, 2020 regulation 3 (the regulation deals with applicability of regulations) where under SEB, vide this amendment, effected certain sub-regulation (b), in the first proviso the changes to Regulation 16 of the Securities term ‘ten crores’ shall be substituted with and Exchange Board of India (Employees term fifty crores. The same substitution Service) Regulations, 2001. The Employee takes place in regulation 60. Service Regulations lay down provisions governing and terms and conditions of The amendment is also made under service office employees of SEBI, whereby regulation 61(it deals with eligibility of all officers, members and employees of issuer to make a rights issue of specified SEBI are deemed to be public servants securities), in explanation, the words under Section 22. “promoters or directors of the issuer” have been substituted with the words “persons or A Third Proviso has been inserted in entities mentioned therein. Next, an Regulation 16 which specifies the explanation is added in regulation 62, in promotion of the employees according to sub-regulation (1), in clause (c). Also, in their qualifications and years of service. It Chapter III, in Part IV, in the title the words states that an employee working as a Junior “Appointment of Lead Managers, Other Secretarial Assistant, Junior Accounts Intermediaries and Compliance Officer” Assistant, Junior Library Assistant or shall be substituted with the words Junior Engineer, who has completed “Appointment of Lead Managers and Other minimum seven years of service and Intermediaries”. possesses the requisite qualifications for officer grade a may be considered for There were several other amendments also switchover to grade A in the officer cadre made, such as in regulation 69, sub- against the vacancies, which shall be within regulation (8) is omitted. One can refer to the overall 10% vacancies as provided by the original SEBI notification for further the second proviso. such minor amendments, but in this summary we have listed only major SECURITIES AND EXCHANGE BOARD OF amendments such as: In regulation 86, in INDIA (ISSUE OF CAPITAL AND sub-regulation (1), the proviso is inserted DISCLOSURE REQUIREMENTS) (FOURTH which deals with when minimum AMENDMENT) REGULATIONS, 2020 subscription criteria shall not be applicable to the issuer. Similarly, in regulation 99 SEBI, vide this amendment revisited the substitution of clause (h) and (m) was done. SEBI (Issue of Capital and Disclosure Clause (m) deals with audit qualifications. Requirements) Regulation, 2018. This is Lastly, In Schedule VI, the substitution of the fourth amendment to the regulation. Part B has been done which deals with These amendments shall come into force on Disclosures in a Letter of Offer.
17 SECURITIES LAW E-NEWSLETTER
SEBI CIRCULARS
July 1, 2020 July 7, 2020 SEBI/HO/DDHS/DDHS/CIR/P/2020/114 SEBI/HO/DDHS/CIR/P/2020/116 The SEBI vide the circular No. The circular relates to the relaxation from SEBI/HO/DDHS/CIR/P/2020/42 dated compliance with certain provisions of the March 23, 2020, granted temporary SEBI (Issue and Listing of Municipal Debt relaxations in compliance requirements for Securities) Regulations, 2015 (ILDM REITs and InvITs owing to the impact of Regulations) and certain SEBI Circulars the CoVID-19 pandemic. Vide this circular, due to the COVID -19 virus pandemic. The the SEBI has granted an extension of one SEBI had vide circular dated No. month by one month over and above the SEBI/HO/DDHS/CIR/P/2020/41 dated timelines, prescribed under SEBI March 23, 2020, granted extension of time (Infrastructure Investment Trusts) lines for certain requirements for issuers of Regulations, 2014 (InvIT Regulations) and Municipal Debt Securities. Vide the circular SEBI (Real estate Investment Trusts) dated July 7, 2020, clause 7 of the circular Regulations, 2014 (REIT Regulations). has been modified partially and further extension of timelines for submission onto SEBI/HO/MIRSD/DPIEA/CIR/P/2020/1 July 31, 2020. 15 July 9, 2020 The SEBI vide the circular prescribed the Standard Operating Procedure in the cases SEBI/HO/IFSC/CIR/P/2020/117 of Trading Member/ Clearing member leading to default. The introduction of Vide the circular, the SEBI amended clause uniform membership structure of Trading 4(1) of the SEBI (IFSC) guidelines 2015. Member (“TM”) and Clearing Member Under the revised framework, any Indian (“CM”) across all segments, the TM shall Stock Exchange or any Stock Exchange of make good the default of its clients to the a foreign jurisdiction may form a subsidiary CM and the CM shall make good the to form a subsidiary to provide the services default of its clients/TM to the CC. The of stock exchange in IFSC wherein at least default of TM may not necessarily lead to 51 per cent of paid up equity share capital default of CM, if the CM continues to fulfill is held by such exchange and remaining the settlement obligation with the CC. In share capital may be offered to any other cases of defaults, it is necessary that a person, whether Indian or of foreign Standard Operating Procedure is jurisdiction. Furthermore, such person shall prescribed. The SoP lays down the actions not either directly or indirectly or to be initiated by the SEs/CCs/ Depositories individually or together with persons acting within a time frame after detection of the in concert acquire or hold over 5% in the early warning signals. In case of an early exchange. The clause further provides that warning of a default where there is a said stock exchanges, depositories, banking shortage of funds or the TM/CM has failed company, insurance company and to meet the settlement obligations, actions commodity derivatives exchange of Indian shall be taken by Initiating Stock Exchange or foreign jurisdiction have been allowed to (ISE) / SEs / CCs and Depositories as per acquire 15 per cent stake in such an the timeline prescribed under the circular. exchange operating in an IFSC.
18 SECURITIES LAW E-NEWSLETTER
July 13, 2020 respectively. Lead manager(s) appointed by the acquirer shall ensure compliance with SEBI/HO/DDHS/CIR/P/2020/120 the provisions of SEBI (InvIT) Regulations The SEBI, vide its circular dated 12 July, and this circular. Also, they must send the 2020 prescribed the guidelines for issue and Letter of Offer (provided under Annexure- listing of structured products/ Marked II) to all dissenting unit holders and shall Linked Debentures (MLD). The circular also file the same along with the due states that the valuation of MLDs shall be diligence certificate with the Exchange(s). carried out by an agency appointed by SEBI/HO/DDHS/DDHS/CIR/P/2020/123 AMFI for the purpose of carrying out valuation. Para 4(f)(i) of the MLD circular SEBI brought in detailed guidelines dated September 28, 2011 specifies that (provided under Annexure-I) in respect of issuer of MLDs shall appoint a third party conditions, manner and mechanism of exit valuation agency which shall be a Credit option to be provided to dissenting unit Rating Agency (CRA) registered with SEBI holders, given under Regulations 22(6A) for carrying out valuation of MLDs. and 22 (8)of SEBI (InvIT) Regulations, respectively. Lead manager(s) appointed by July 15, 2020 the acquirer shall ensure compliance with SEBI/HO/DDHS/CIR/P/2020/121 the provisions of SEBI (REIT) Regulations and this circular. They must Also, send the On account of the pandemic, the SEBI vide Letter of Offer (provided under Annexure- circular no. II) to all dissenting unit holders and shall SEBI/HO/CFD/CMD1/CIR/P/2020/ 106 also file the same along with the due dated June 24, 2020 extended the diligence certificate with the Exchange(s). timelines for submission of financial results for the quarter/half year/annual financial July 20, 2020 year for the period ending March 31, 2020 SEBI/HO/CDMRD/DNPMP/CIR/P/202 till July 31, 2020. However, representations 0/125 were received from entities seeking extension of time for listing their Non- SEBI decided to repeal Clause ‘3a’ Convertible Debentures (NCDs) pending provided under circular finalization of their annual accounts for the SEBI/HO/CDMRD/DMP/CIR/P/2017/55 financial year ending March 31, 2020. dated June 13, 2017 regarding “Options on Accordingly, it has been decided to permit Commodity Futures - Product Design and listed Issuers who have issued Risk Management Framework”. The NCDs/NCRPS/CPs, on or after July 01, provision stands repealed from July 20, 2020 and intend/propose to list such 2020 onwards whereas other provisions issued NCDs/NCRPS/CPs, on or before shall continue to be in operation. Pursuant July 31, 2020, to use available financials as to this, stock exchanges are advised to take on December 31,2019. necessary steps for the proper implementation of this circular. July 17, 2020 SEBI/HO/MRD2/DCAP/CIR/P/2020/12 SEBI/HO/DDHS/DDHS/CIR/P/2020/122 7 SEBI brought in detailed guidelines SEBI decided that the Stock Exchanges/ (provided under Annexure-I) in respect of Clearing Corporations shall adopt the conditions, manner and mechanism of exit framework (refer Annexure) mentioned in option to be provided to dissenting unit this circular for the purpose of ‘Mechanism holders, given under Regulations 22(5C) for regular monitoring of and penalty for and 22(7) of SEBI (InvIT) Regulations,
19 SECURITIES LAW E-NEWSLETTER
short-collection/non-collection of margins CIR/IMD/DF/21/2012 dated September 13, from clients’ in Cash and Derivatives 2012 to the extent that for debt schemes segments with an objective to enable disclosure shall be done on fortnightly basis uniform verification of upfront collection of within 5 days of every fortnight. In addition margins from clients by TM/ CM and levy to the current portfolio disclosure, yield of of penalty across segments. However, the the instrument shall also be disclosed. It applicable upfront margins are required to comes into force from October 1, 2020. be collected in advance of the trade. This circular amends Circular July 23, 2020 SEBI/HO/CDMRD/DRMP/CIR/P/2019/14 SEBI/HO/ISD/ISD/CIR/P/2020/133 9 dated November 29, 2019 to such an extent alone and is applicable from Vide this circular, SEBI decided that in December 1, 2020. addition to the transactions mentioned in Clause 4(3)(b) of Schedule B read with July 21, 2020 Regulation 9 of PIT Regulations, trading SEBI/HO/CDMRD/DRMP/CIR/P/2020/ window restrictions shall not apply in 128 respect of OFS and RE transactions carried out in accordance with the framework SEBI decided to insert the following clause specified by the Board from time to time. at the end of Part-B provided under Annexure to the Circular SEBI/HO/ISD/ISD/CIR/P/2020/135 SEBI/HO/CDMRD/DRMP/CIR/P/2018/11 Vide this Circular, a revised format for 1 dated July 11, 2018, to address the reporting of violations related to the CoC is concern regarding high stress loss figures placed. Further SEBI decided that any on positions with early pay-in: amount collected by the listed companies, "h) While calculating the residual losses intermediaries and fiduciaries under the as per 'd' and 'f' above, for positions on violation(s) clause 12 of Schedule B and which early pay-in are given by the clause 10 of Schedule C read with clients/brokers, and margin exemption are Regulation 9 of the PIT Regulations shall granted on such positions, CCs are be remitted to the Board to be credited to permitted to consider the 'margin the Investor Protection and Education Fund exemption granted' or 'value of early paid- (IPEF) through the online mode or by way in goods', whichever is lower, as 'margins of a demand draft (DD) in favour of the supporting those positions'." The said Board (i.e. SEBI – IPEF) payable at clause shall be retrospectively applicable Mumbai. from July 11, 2018. July 24, 2020 July 22, 2020 SEBI/HO/CFD/DIL1/CIR/P/2020/136 SEBI/HO/IMD/DF3/CIR/P/2020/130 Vide this Circular, SEBI decided that the SEBI, with an objective to enhance the validity of relaxations, as provided by transparency and disclosure pertaining to Circular No. debt schemes and investments by mutual SEBI/HO/CFD/DIL2/CIR/P/2020/78 funds in Corporate Bonds/Commercial dated May 6, 2020 is further extended Papers, has decided to bring in certain and shall now be applicable for Rights changes. Firstly, a mechanism to increase Issues opening up to December 31, 2020. the liquidity on exchange platform is set to be introduced. Secondly, this circular modifies SEBI circular no.
20 SECURITIES LAW E-NEWSLETTER
SEBI/HO/MRD2/DDAP/CIR/P/2020/137 SEBI/HO/MIRSD/DOP/CIR/P/2020/68 dated April 21, 2020. Vide this Circular, SEBI decided that Depositories shall put in place a system for SEBI/HO/MIRSD/DOP/CIR/P/2020/142 capturing and Recording all types of encumbrances, which are specified under In view of the prevailing situation due to Regulation 28(3) of SEBI (Substantial COVID-19 pandemic and representation Acquisition of Shares and Takeovers) received from the Depositories, SEBI vide Regulations, 2011, as amended from time this Circular decided to further extend the to time. Guidelines to the same were also timelines for compliance with the placed along with this Circular. regulatory requirements by Depository Participants/ Registrars to an Issue & Share July 27, 2020 Transfer Agents / KYC Registration Agencies, mentioned under previous SEBI SEBI/HO/CFD/DCR2/CIR/P/2020/139 Circulars No. Vide this Circular, SEBI decided that the SEBI/HO/MIRSD/DOP/CIR/P/2020/62 validity of relaxations, as provided by dated April 16, 2020 and No. Circular No. SEBI/HO/MIRSD/DOP/CIR/P/2020/72 SEBI/CIR/CFD/DCR1/CIR/P/2020/83 dated April 24, 2020. dated May 14, 2020 shall be further SEBI/HO/MIRSD/DOP/CIR/P/2020/143 extended and be applicable for open offers and buy back through tender offers opening Given the Coivid-19 pandemic, partial up to December 31, 2020. lockdowns in various areas of the country, representations received from the stock July 29, 2020 brokers and stock broker associations and SEBI/HO/CFD/CMD1/CIR/P/2020/140 that the changes to the systems and software development still under progress, The SEBI vide this Circular after due vide this Circular SEBI decided that; consideration of representations received, Firstly, the mechanisms of pledge/ re- decided to extend the timeline for pledge issued vide Circular No. submission of financial results under SEBI/HO/MIRSD/DOP/CIR/P/2020/28 Regulation 33 of the LODR Regulations, dated February 25, 2020 shall be 2015 for the quarter/half year/financial year implemented with effect from August 01, ended June 30, 2020, to September 2020. Secondly, the Trading Member 15,2020. (TM)/ Clearing Member (CM) shall also be SEBI/HO/MIRSD/DOP/CIR/P/2020/141 allowed to accept client securities as collateral by way of title transfer into the In view of the prevailing situation due to Client Collateral Account as per the present Covid-19 pandemic and representations system. The system of parallel acceptance received from the Stock Exchanges, SEBI of the client securities by way of title vide this Circular decided to further extend transfer shall be available only up to August the timelines for compliance with the 31, 2020 and no further extension shall be regulatory requirements by the Trading granted. Thirdly, funded stocks held by the Members / Clearing Members/ Depository TM/ CM under the margin trading facility Participants mentioned in the previous shall preferably be held by the TM/ CM by SEBI Circulars: No. way of pledge with effect from August 01, SEBI/HO/MIRSD/DOP/CIR/P/2020/61 2020. TM / CM may continue to hold dated April 16, 2020, No. funded stocks in respect of margin SEBI/HO/MIRSD/DOP/CIR/P/2020/62 funding in ‘Client Margin Trading dated April 16, 2020, No. Securities Account’ till August 31, 2020 by
21 SECURITIES LAW E-NEWSLETTER
which date all such accounts shall be other provisions of the circular dated closed. Fourthly, in terms of paragraph 12 November 19, 2019 shall continue to of the Circular dated February 25, 2020, remain applicable. TM/ CM shall be required to close all existing demat accounts tagged as ‘Client August 3, 2020 Margin / Collateral’ by August 31, 2020. SEBI/HO/IMD/DF1/CIR/P/2020/147 July 31, 2020 SEBI vide its circular dated 3rd August 2020 SEBI/HO/CFD/CMD1/CIR/P/2020/144 notified the procedural guidelines for proxy advisors which are to be read with Vide this Circular SEBI clarified that Regulation 24(2) read with23(1) of SEBI shareholders holding securities in physical (Research Analyst) Regulations, 2014, form are allowed to tender shares in open which includes formulation of voting offers, buy-backs through tender offer route recommendation policies and disclosure of and exit offers in case of voluntary or updated voting policy, development compulsory delisting. However, such methodology in research, establishing tendering shall be as per the provisions of procedure for communication with clients the LODR Regulations, 2015. and disclosure of conflict of interests before giving their advice and others. The SEBI/HO/CFD/CMD1/CIR/P/2020/145 provisions of the code shall be applicable SEBI vide this Circular granted the use of from September 1, 2020. In addition to this, digital signature certifications for SEBI vide its circular dated August 4, 2020 authentication / certification of any filing / has established a grievance resolution submission made to stock exchanges under process between the listed entities and the LODR Regulations, till December 31, proxy advisors. 2020. August 6, 2020 SEBI/HO/MIRSD/DOP/CIR/P/2020/146 SEBI/HO/IMD/DF1/CIR/P/2020/148 SEBI vide this Circular decided to modify SEBI vide its circular dated 6th August the Guidelines with regard to collection of 2020 notified the procedure and conditions margins from clients and reporting of short- for setting up ‘stock exchange subsidiaries’ collection/non-collection of margins by for administration and supervision of IAs Trading Member (TM)/ Clearing Member registered with SEBI. The circular lays (CM) issued under Circular No. down in details the criterion under three CIR/HO/MIRSD/DOP/CIR/P/2019/139 heads namely- (a) criteria for grant of dated November 19, 2019. The recognition, (b) Setting up of requisite modifications are: First, If TM / CM systems by stock exchanges for the collects a minimum 20% upfront margin in purpose, (c) Responsibilities of subsidiary lieu of VaR and ELM from the client, then of a stock exchange. The stock exchanges penalty for short-collection/ non-collection fulfilling the criteria stated in the circular of margin shall not be applicable. should submit the detailed proposal However, the Clearing Corporation shall incorporating the required system within 30 continue to collect the upfront margin from days of the release of this circular. the TM/ CM based on VaR and ELM. Secondly, The penalty provision for short- August 10, 2020 collection/ non-collection of upfront margin in the cash segment shall be SEBI/HO/IMD/DF4/CIR/P/2020/151 implemented with effect from September SEBI vide its circular dated 10th August 01, 2020. Circular further mentions that all 2020 notified the resources for Trustees of
22 SECURITIES LAW E-NEWSLETTER
Mutual Funds, who will have to appoint an SEBI vide this circular amended the Clause officer having professional qualification in 19 of the SEBI (IFSC) Guidelines, 2015. the field of financial services for discharge Clause 19 stated that the entities issuing of the function as an access person in terms and/or listing their debt securities in of SEBI Circular No. MFD/CIR International Financial Services Centres No.4/216/2001 dated May 08, 2001 and to (IFSC) shall prepare their statements of support the roles and responsibilities of the accounts in accordance with IFRS/ US Trustee from time to time. This is in GAAP/IND AS or accounting standard as addition to the standing arrangements with applicable to them in their place of independent firms for legal advice or incorporation. In case an entity does not special purpose audits. prepare its statement of accounts in accordance with IFRS/ US GAAP/ IND August 13, 2020 AS, a quantitative summary of significant SEBI/HO/OIAE/IGRD/CIR/P/2020/152 differences between national accounting standards and IFRS shall be prepared by SEBI vide its circular dated 13th August such entity and incorporated in the relevant 2020 notified the guidelines for investor disclosure documents to be filed with the grievance redressal mechanism and exchange. procedure for handling of SCORES complaints by stock exchanges, Standard Vide this circular, SEBI amended the Operating Procedure for non-redressal of provision that required the quantitative grievances by listed companies. It also lays summary of significant differences under down the procedure for action to be taken Clause 19. The amendment provision states for failure to redress investor complaints that a statement of differences between and action to be taken after redressal of local accounting standards and IFRS/ US investor grievance by the company. The GAAP/ IND AS would suffice, if the issue annexure to the circular lays down the is targeted to institutional investors, along timeline to be followed for handling of with a disclaimer that issuer has not complaints and actions in case of non- quantified the effect of applying IFRS/ US compliance. GAAP / IND AS to its financial information and investor may make their own judgment August 18, 2020 in accessing the financial information. SEBI/HO/MRD2/DDAP/CIR/P/2020/153 SEBI/HO/MRD1/DSAP/CIR/P/2020/155 SEBI vide its circular dated 18th August SEBI vide this circular amended SEBI 2020 notified the Corrigendum to Master (IFSC) Guidelines, 2015 by incorporating Circular for Depositories dated October 25, new clause 8(3) which states that an entity, 2019 on preservation of records wherein based in India or in a foreign jurisdiction, several amendments were brought in may provide financial services in IFSC, namely to Regulations 54 and 66 of the subject to compliance with the applicable SEBI (Depositories and Participants) regulatory framework/ guidelines for such Regulations, 2018, Section 4.6 of the financial services, as specified by the Master Circular for Depositories and Board, from time to time. Paragraph 2 of SEBI circular MRD/DoP/DEP/Cir-20/2009 dated August 27, 2020 December 9, 2009. SEBI/HO/IMD/DF1/CIR/P/2020/15 August 21, 2020 SEBI vide this circular extended the SEBI/HO/MRD1/DSAP/CIR/P/2020/154 timeline for compliance with the requirements of SEBI Circular No.
23 SECURITIES LAW E-NEWSLETTER
SEBI/HO/IMD/DF1/CIR/P/2020/147 SEBI/HO/CFD/CMD1/CIR/P/2020/159 dated August 03, 2020, by four months. The provisions of said SEBI Circular shall be SEBI vide this circular extended the applicable with effect from January 01, timeline for compliance with the 2021. August 27, 2020 requirements of SEBI Circular No. SEBI/HO/MIRSD/DOP/CIR/P/2020/158 SEBI/HO/IMD/DF1/CIR/P/2020/147 SEBI vide this circular addressed the dated August 03, 2020 and SEBI Circular misuse of power of attorney (PoA) and No. reiterated that PoA is optional for opening SEBI/HO/CFD/CMD1/CIR/P/2020/119 of client account by stockbrokers or dated August 04, 2020, by four months. depository participants. SEBI observed that Accordingly, the provisions of said SEBI the PoAs were invariable obtained from the Circulars shall be applicable with effect investors as part of KYC and account from January 01, 2021. opening process and subsequently, were August 31, 2020 misused by the stockbrokers by taking authorisations that were prohibited by the SEBI/HO/FPI&C/CIR/P/2020/162 regulator in its Guidelines for execution of SEBI vide Circular No. PoA, issued vide circular number SEBI/HO/FPI&C/CIR/P/2020/056 dated CIR/MRD/DMS/28/2010 dated August 31, March 30, 2020 had prescribed temporary 2010. relaxation in processing of documents SEBI stated that PoA executed in favour of pertaining to FPIs due to COVID-19. stock broker / stock broker depository Further, vide Circular No. participant by the client shall be utilized SEBI/HO/FPI&C/CIR/P/2020/104 dated shall be utilized (i) for transfer of securities June 23, 2020, the temporary relaxations held in the beneficial owner accounts of the were extended till August 31, 2020. SEBI client towards Stock Exchange related observed that certain jurisdictions still deliveries/ settlement obligations arising continue to be under lockdown due to out of trades executed by clients, (ii) for COVID-19 pandemic. Therefore, SEBI pledging / re-pledging of securities in decided that for the entities from favour of trading member (TM) / clearing jurisdictions which are still under member (CM) for the purpose of meeting lockdown, the temporary relaxations shall margin requirements of the clients in be extended to the entities from such connection with the trades executed by the jurisdictions till the time lockdown is lifted clients on the Stock Exchange. SEBI also from such jurisdictions. However, in-transit decided that all off-market transfer of applications shall be processed on the basis securities shall be permitted by the of provisions of aforesaid circular dated Depositories only by execution of Physical March 30, 2020. It may be noted that for the Delivery Instruction Slip (DIS) duly signed entities from jurisdictions where lockdown by the client himself or by way of electronic has already been lifted, the relaxation DIS. provided under the aforesaid circular dated March 30, 2020 shall not be applicable. All other provisions specified in SEBI circular dated April 23, 2010 read with SEBI/HO/MIRSD/CRADT/CIR/P/2020/ SEBI circular dated August 31, 2010 shall 160 continue to remain applicable. The circular SEBI vide this circular stated that if a Credit shall be applicable with effect from Rating Agency (CRA), based on its November 01, 2020. assessment, is of the view that the restructuring by the lenders/ investors is solely due to COVID-19 related stress or
24 SECURITIES LAW E-NEWSLETTER
under the RBI Resolution Framework for Regulations’), in relation to shares COVID-19 related stress dated August 06, encumbered with TM /CM as collateral 2020, CRAs may not consider the same as from clients for margin obligation in the a default event and/or recognize default. ordinary course of stockbroking business, Appropriate disclosures in this regard shall for ease of doing business. be made in the Press Release. September 02, 2020 September 01, 2020 SEBI/HO/IMD/DF4/CIR/P/2020/165 SEBI/HO/IMD/DF4/CIR/P/2020/163 SEBI issued the circular for review of Vide the Circular No. Cir/IMD/DF/6/2012 provisions relating to the segregation of dated February 28, 2012, SEBI had portfolio under the COVID-19 pandemic. prescribed the format to disclose all debt The market regulator stated that the and money matter transacted details in its restructuring of the debts is due to the schemes portfolio, including inter – scheme COVID-19 pandemic and shall be transfers, on a daily basis, with a time lag of recognised as an event. Further, it was thirty days. This was revised by the market clarified that the date of proposal for regulator vide the circular dated Sept. 01, restructuring debt received by the AMC’s 2020, to further enhance transparency, by shall be treated as a trigger date for the requiring mutual funds to disclose details of purpose of creation of segregated portfolio. debt and money market securities Any such proposals shall also be transacted in their schemes portfolio, immediately reported to the valuation or the including inter – scheme transfers, with a credit rating agencies, and on receipt of time lag of fifteen days, in a revised format. such information it shall be immediately The disclosure is also to be in a comparable, disseminated to the members. downloadable (spreadsheet) and machine readable format. The Circular was issued in September 07, 2020 exercise of the powers conferred under SEBI/HO/MIRSD/RTAMB/CIR/P/2020/ Section 11 (1), read with Regulation 77 of 166 the SEBI (Mutual Funds) Regulations, 1996, and is to come into effect from Oct. Under Regulation 40(1) of SEBI (Listing 1, 2020. Obligations and Disclosure Requirements) Regulations, 2015, transfer of securities September 02, 2020 held in physical mode was discontinued SEBI/HO/CFD/DCR-2/CIR/P/2020/164 with effect from April 01, 2019. Subsequently, vide the Press Release No. In February, the market regulator had 12/2019 dated March 27, 2019, it was issued guidelines on acceptance of provided that transfer deeds lodged prior to collateral from clients in the form of deadline of April 01, 2019 and rejected / securities by a Trading Member (TM) or returned due to deficiency in the documents Clearing Member (CM) only by way of may be re - lodged with requisite margin pledge created in the depository documents. With the present circular, the system. Upon representations received and market regulator has fixed March 31, 2021 in consultation with market participants, as the cut - off date for re - lodgement of SEBI, vide its circular dated Sept. 02, 2020, transfer deeds. It was further stated that, the decided to dispense with the disclosure shares that are re-lodged for transfer specified under Regulation 29 (4) of the (including those request that are pending SEBI (Substantial Acquisition of Shares with the listed company / RTA, as on date) and Takeover) Regulations, 2011 shall henceforth be issued only in demat (hereinafter referred to as ‘Takeover mode.
25 SECURITIES LAW E-NEWSLETTER
September 08, 2020 which, Regulation 7(2)(c) was inserted granting enabling power to SEBI for SEBI/HO/MIRSD/DOP/CIR/P/2020 prescribing manner of submitting System In May, vide Circular No. Driven Disclosures (SDD). Vide the present SEBI/HO/MIRSD/DOP/CIR/P/2020/80 circular dated Sept. 09, 2020 SEBI has dated May 12, 2020 the market regulator, issued the manner of providing SDD under SEBI, had come out with a list of eight Regulation 7(2). entities, that are permitted to use the September 11, 2020 Electronic Know Your Customer (e – KYC) Aadhaar authentication. Vide the SEBI/HO/IMD/DF3/CIR/P/2020/172 circular, SEBI/HO/MIRSD/DOP/CIR/P/2020, SEBI The Circular aims to exclusively modify the permitted the National Stock Exchange of scheme characteristics of Multi Cap Funds India Ltd (NSE) to undertake e – KYC as envisaged under Sr. No. 1 of point A of Aadhaar authentication service of UIDAI, Annexure of Circular No. subject to the compliance of the conditions SEBI/HO/IMD/DF3/CIR/P/2017/114 laid down. dated October 06, 2017. The modified scheme mandate that while investing in September 09, 2020 equity & equity related instruments, 75% of the total investments should be SEBI/HO/IMD/DF1/CIR/P/2020/169 equally divided between equity & On March 27, 2015, SEBI had issued the equity related instruments of large cap, mid SEBI (International Financial Services cap and small cap companies. The same has Centres) Guidelines, 2015 (hereinafter to be complied within a month from the date referred to as ‘IFSC Guidelines’), in order of publishing the next list of stocks by to facilitate and regulate financial services AMFI, relating to securities market in an IFSC set September 15, 2020 up under Section 18(1) of Special Economic Zones Act, 2005. Based on the SEBI/HO/MIRSD/DOP/CIR/P/2020/173 representations received from various stakeholders, the market regulator decided Vide this clarificatory Circular, ambiguity to put in place ‘Operating Guidelines for with respect to levy of penalty for non- Portfolio Managers in IFSC’, vide this collection of “other margins” on or before circular. T+2 days by Trading Members/Clearing Members from clients was put to rest. There SEBI/HO/ISD/ISD/CIR/P/2020 will not be penalty for short /non-collection of margin including other margins if pay-in Vide this Circular, SEBI automated the (both funds and securities) is made by disclosure requirements under Section 7(2) T+2working days, or if Early Pay-in of of the SEBI (Prohibition of Insider Trading) securities has been made to the Clearing Regulations, 2015 (PIT Regulations, 2015). Corporation. Further, in such in instances It supersedes the earlier circulars of all margins would have deemed to have December 01, 2015, December 21, 2016 been collected. However, if the client fails and May 28, 2018 with respect to to make pay-in by T+2 working days and implementation of System driven Trading Members/Clearing Members do disclosures (SDD) under PIT Regulations. not collect other margins from the client by SEBI vide gazette notification dated July T+2 working days, this would result in the 17, 2020 notified amendments in PIT levy of penalty. Regulations through SEBI PIT (Amendment) Regulations, 2020, as per
26 SECURITIES LAW E-NEWSLETTER
September 16, 2020 responsibilities of various teams. The teams concerned are those who are engaged in SEBI/HO/DDHS/DDHS/CIR/P/2020/174 fund management, dealing, compliance, The Circular aims to include within Clause risk management, back-office, among 7 of SEBI (IFSC) Guidelines, 2015, units of others in matters of order placement, InvITs and REITs, which effectively execution of order, trade allocation permits it to be listed on stock exchanges amongst various schemes and other related operating in International Financial matters. Further, requirements have been Services Centres subject to certain laid down with respect to communication conditions. These shall be listed only in and sharing of information by dealers, trade specific international exchanges in allocation policies of AMCs including permissible jurisdictions, an approved list detailing situations wherein the orders by of which will be updated from time to time. dealers shall be placed for each scheme Further, as a pre-condition, these units have individually or pooled from multiple to be within the regulatory ambit of schemes, and the timeline of the same. It Securities Market Regulators in the has also been laid down that if the case is concerned jurisdiction. Furthermore, the that of pooled orders, the allocation shall be concerned stock exchanges should carried out on pro rata-basis, basis the size formulate a framework detailing the of the order and adopting the method of compliances that have to be met with. weighted average price. In case of exception of pro-rata, the situations under September 17, 2020 which it can be done so should be SEBI/HOIMD/DF2/CIR/P/2020/175 envisaged, subject to approval from the prescribed authorities. In order to cover the The Circular which comes into force from interest of the investors, details on how 01.01.2021, is pertaining to Mutual Funds. margins / collaterals shall be put from Firstly, SEBI Circular No. amongst various schemes, should they be SEBI/IMD/DF/21/2012 dated September done so, are to be detailed by Mutual Funds. 13, 2012 was partially modified to the Lastly, non-compliance of the effect that closing NAV of the day will be abovementioned ought to be reported as applicable on which the funds are available prescribed. This includes a system to for utilization, when units of mutual fund monitor the compliance which should schemes are purchased, irrespective of the contain time stamped audit trails of order size and time of such transaction. However, placement, trade execution and allocation. this does not apply to liquid and overnight funds, and existing provisions and cut-off September 21, 2020 timings for all such schemes will remain SEBI/HO/CDMRD/DRMP/CIR/P/2020/ unchanged. Currently, for schemes other 176 than liquid and overnight funds, for a subscription amount less than Rs 2 lakh, if This Circular was issued in light of extreme the application is received up to 3:00 PM, fluctuation of commodity prices, such as the closing NAV of the day on which the that of crude oil’s. A dedicated task force application was received is considered. If it was constituted to study the same and draft is received after 3:00 PM, the closing NAV a risk management framework. Following of the next business day is taken into this, an Alternate Risk Management account. Further, Asset Management Framework (ARMF) was formulated which Companies were directed to put in writing would come into play on satisfaction of the and comply with, a policy, approved by the prescribed conditions, applicable on the Board and trustees detailing the prescribed commodities. For commodities to be treated as those which can touch zero
27 SECURITIES LAW E-NEWSLETTER
and negative price range, two conditions While write-off of securities held by FPIs must be satisfied. Commodities that would who wished to surrender their registration come within this bracket include those that was permitted only in respect of shares of need specialized storage space in physical companies which were markets, which, if not followed, may cause unlisted/illiquid/suspended/delisted, the environmental hazards or have other write off of shares has now been extended external implications and it can’t be into those of all the companies which were disposed of/destroyed with ease i.e. unable to be sold. disposal/destruction of such commodities may cause an environmental hazard or may September 23, 2020 incur significant cost. The framework need SEBI/HO/IMD/DF4/CIR/P/2020/178 not be imbibed into the system of Clearing Companies if they do not deal with Vide this Circular, the date of applicability commodities falling in the abovementioned of a Circular issued earlier by the SEBI, range. namely Circular No. SEBI/HO/IMD/DF4/CIR/P/2020/0000000 In case CCs sense the chance of a zero or 151 has been extended from October 1, near zero price fall in any such commodity 2020 to January 1, 2021. The Circular in as mentioned herein, then AMRF has to be reference dealt with appointment of a activated for such commodity derivatives. professional by Trustees to discharge duties Indicators for the same include a fall in the of the latter. commodity prices by more than 50% within 20 trading days, a fall in the price of the SEBI/CIR/CFD/DCR1/CIR/P/2020/181 underlying commodity/futures contract to The circular refers to the process to be the level equal to or lower than the followed by Depositories, Exchanges and maximum price movement observed over Registrar &; Share Transfer Agents for the Margin Period of Risk in past 12 implementation of System-Driven months, amongst others. In case such Disclosures wherein it required that the indicators are visible, a decision on capture of the PAN of the entities be done activating the AMRF would be taken from the listed company itself, rather than subject to review of the stock exchanges in through the Registrar & Share consultation with the CCs. The Circular Transfer Agents. The present Circular aims further discussed the characteristics of the to adopt the procedure of capturing the framework, among many one in which PAN of the promoters from listed prices are assumed to be log normally companies and extrapolate them for distributed and volatility is calculated based Substantial Acquisition of Shares and on the difference in log prices since log of Takeovers’ disclosures as well. zero or negative numbers are not defined. The framework would cease to be in force SEBI/HO/IMD/DF1/CIR/P/2020/182 when the conditions that triggered the Reference was made to Securities and activation of the ARMF no longer prevail Exchange Board of India (Investment and the exit from the framework will be Advisers) (Amendment) Regulations, 2020 done so in reasonable time so as to avoid which was brought into effect from frequent switching between alternate and September 30, 2020. Vide this Circular, regular frameworks. additional guidelines to be complied with SEBI/HO/IMD/FPI& C/CIR/P/2020/177 by Investment Advisers were laid down. Firstly, a client-level segregation of Through the Circular, blanket permission advisory and distribution activities is was sought to be granted in the existing sought to be complied with ensuring that Operational Guidelines for FPIs and DDPs.
28 SECURITIES LAW E-NEWSLETTER
existing clients who wish to take certain details which ought to be carried out advisory/distribution services will not be in the prescribed manner, within the eligible for availing advisory/distribution prescribed time limit. Time of applicability services respectively, within the of these compliances are of varied nature, group/family of IA, and However, a new and spread across. client will be eligible to avail either advisory or distribution services within the September 28, 2020 group/family of Investment Advisor SEBI/HO/IMD/DF1/CIR/P/2020/185 wherein, the option to avail either advisory services or distribution services shall be Vide this circular, SEBI amended the made available to such client at the time of operating guidelines for Investment on boarding. Further, an investment Advisers (IAs) in International Financial advisory agreement should be entered upon Services Centre (IFSC). The amendment by the Investment Advisor and its clients, permits any entity, being a LLP, Company, which shall mandatorily cover the or any other similar structure recognized prescribed terms and conditions, with under the laws of its parent jurisdiction to liberty to additional terms and conditions. register as an Investment Advisor in IFSC. Furthermore, blanket as well as specific It also requires IAs to ensure compliance guidelines on fees that can be charged have with overseas regulators, while dealing also been laid down. As per specific with persons outside India and NRIs guidelines, fees charged under Assets under seeking advisory services from them. The Advice Mode should not be more than 2.5% amendment also requires the IAs to ensure of the asset value. On the other hand, under that annual audits are conducted in order to the Fixed Fee Mode, the maximum fee shall comply with IA Regulations. not exceed Rs. 1.25 Lakhs. General SEBI/HO/MIRSD/DPIEA/CIR/P/2020/186 guidelines include, change of mode which can be effected only after 12 months of on Vide this circular, SEBI advised Stock boarding/last change of mode, if agreed by Exchanges (SEs) and Clearing the client, Investment Advisor may charge Corporations (CCs) to initiate suitable fees in advance. However, such advance actions, before the appropriate court of law, shall not exceed fees for 2 quarters. for liquidating the assets (movable and Pertaining to qualification and certification, immovable) of defaulters, within six it is made clear that existing Individual months of declaration of defaulter, for Advisors above fifty years of age shall not recovery of the assets not in possession of be required to comply with the qualification the SE/CC. The Circular further advised the and experience requirements under the SEs and CCs to disseminate the contents of amended Investment Advisor Regulations. the circular to their members, make However, such IAs shall hold NISM amendments to bye-laws wherever accredited certifications and comply with necessary, and communicate the other conditions as specified in the implementation of the circular’s provisions amended Regulations. Subsequently, an in their monthly report to SEBI. individual Investment Advisor shall apply SEBI/HO/DDHS/DDHS/CIR/P/2020/184 for registration as non-individual investment adviser on or before reaching Vide this circular, SEBI relaxed the 150 clients, and should not take on guidelines for preferential issue and additional clients until such registration is institutional placement of units listed by granted to him. Further additional Real Estate Investment Trusts (REITs), in compliances include maintenance of light of the Covid-19 pandemic. Earlier, the records, audit, risk-profiling and display of mandated time gap raise equity capital was
29 SECURITIES LAW E-NEWSLETTER
six months between two institutional December 31, 2020, the InvIT may opt for placements. REITs can now raise equity a pricing method where the price of the capital through institutional placement units to be allotted pursuant to the route two weeks after a previous such preferential issue shall not be less than the exercise. higher of the following: It also provided for the following pricing (a) the average of the weekly high and low method: for any preferential issue made of the volume weighted average price of the between the date of the circular and related units quoted on the recognized stock December 31, 2020, the REIT may opt for exchange during the twelve weeks a pricing method where the price of the preceding the relevant date; or (b) the units to be allotted pursuant to the average of the weekly high and low of the preferential issue shall not be less than the volume weighted average prices of the higher of the following: (a) the average of related units quoted on a recognized stock the weekly high and low of the volume exchange during the two weeks preceding weighted average price of the related units the relevant date. Further, the circular stated quoted on the recognized stock exchange that the units allotted on a preferential basis during the twelve weeks preceding the using the pricing method set out by the relevant date; or (b) the average of the regulator shall be locked-in for a period of weekly high and low of the volume three years. weighted average prices of the related units quoted on a recognized stock exchange September 29, 2020 during the two weeks preceding the SEBI/HO/CFD/DIL1/CIR/P/2020/188 relevant date. Further, the circular stated that the units allotted on a preferential basis Vide this circular, SEBI extended the earlier using the pricing method set out by the relaxations (vide circular dated April 21, regulator shall be locked-in for a period of 2020) pertaining to validity of regulatory three years. approval for launching IPO and rights issue, to March 31, 2021. This is in view of the SEBI/HO/CFD/DIL1/CIR/P/2020/188 prevailing conditions due to COVID-19 Vide this circular, SEBI relaxed the pandemic. Relaxation has been extended in guidelines for preferential issue and respect of filing of fresh offer document in institutional placement of units listed by case of increase or decrease of issue size by Infrastructure Investment Trusts (InvITs), 50 per cent. The validity of SEBI’s in light of the Covid-19 pandemic. Earlier, observations, expiring between October 1, the mandated time gap raise equity capital 2020, and March 31, 2021, has also been was six months between two institutional extended up to March 31, 2021. This is placements. InvITs can now raise equity subject to an undertaking from lead capital through institutional placement manager of the issue confirming route two weeks after a previous such compliance with the ICDR (Issue of Capital exercise. It also provided for the following and Disclosure Requirements) Regulations pricing method: for any preferential issue while submitting the updated offer made between the date of the circular and document to SEBI.
The Editorial Board
Mudit Jain, Aditya Yadav, Ayushi Singh, Chirag Jindal, Shiren Panjolia, Navya Benny, Winy Daigavane, Anjali Anil, Dipanshu Turiya, Jyotsna Punshi, Aravind Sreekumar, Abhinav Mathur, Saaramsh Satheesh, Animesh Pandey, Shaun S. George, Sreyas Manoj, Jumana Basheer, Vismay Gorantala, Naveen Kumar, Jaansiva YS, Adarsh Vijayakumaran.
30 SECURITIES LAW E-NEWSLETTER