SEBI board meeting highlights: Faster rights issue, new asset class, T+0 settlement, but mum on F&O

SEBI on Monday announced a slew of measures aimed at ease of doing business in terms of lesser disclosures, faster process for rights issues, expansion of T+0 settlement and optional mechanism for block deals under T+0 settlement cycle, among others. It also announced a new asset class under the existing mutual fund framework. The SEBI board did not announce any steps to curb retail speculation in the futures and options (F&O) segment, as was anticipated ahead of the board meeting, but increased the scope of prohibition of insider trading regulations.    

Investment Strategies
The SEBI board approved the introduction of a new investment product under the existing mutual fund framework. The new investment product is intended to bridge the gap between mutual funds and Portfolio Management Services (PMS) in terms of flexibility in portfolio construction. The new product will curtail the proliferation of unregistered and unauthorised investment schemes, which often promise unrealistic high returns and exploit investors’ expectations for better yields, SEBI said.

"The new product aims to provide investors with a professionally managed and well regulated product that offers greater flexibility, higher risk-taking capabilities for higher ticket size, while ensuring that appropriate safeguards," SEBI said.

The new product will be called ‘Investment Strategies’. The minimum investment limit for the new product will be Rs 10 lakh per investor across all investment strategies of the new product in a particular AMC. 

Block deal, T+0 settlement
The number of scrips eligible for trading under optional T+0 settlement will be increased in a phased manner from the 25 to top 500 in terms of market capitalisation. All registered stock brokers can offer access to the optional T+0 settlement cycle to their investors. Stock Brokers are free to charge differential brokerage for the same, SEBI said.

Besides, an optional block window mechanism will be introduced under T+0 settlement cycle as an 8.45 am to 9.00 am session, alongside the existing block windows under T+1 settlement cycle. 

Faster rights issue process

SEBI said rights issues will now be completed in 23 working days from the date of issuer’s board meeting approving rights issue, as against present average timelines of 317 days. This mechanism would be even faster than the preferential allotment route that takes 40 working days. SEBI said it has discontinued the current requirement of filing Draft Letter of Offer with SEBI for issuance of its observation. Instead it will be filed with stock exchanges for its in-principle approval. Stock exchanges would confirm that the issuer is in compliance with LODR disclosure requirements, the SEBI note said.

"SEBI's initiative in reducing timelines (i.e. rights issue to be completed in 23 days approx from existing time required of 317 days) for rights issue is a welcome step. With reduced timelines corporates can have faster access to funds through rights issue. Revised rights issue timelines would make it a preferred option for fund raising as it gives an opportunity to all existing shareholders to be a part of growth story of company," said Makarand M Joshi, Founder MMJC and Associates.

SEBI said the appointment of a monitoring agency will be mandatory for all rights issue irrespective of the issue size, to monitor the use of proceeds of the issue. 

Rights issues of issue size less than Rs 50 crore, have been brought under the purview of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. It announced a system-driven disclosure of shareholding pattern and revision in credit ratings by stock exchanges. thereby reducing the reporting requirements on listed entities. Detailed advertisement of financial results in newspapers would now be optional for listed entities, SEBI said. 

Disclosures
SEBI has now given additional time of three hours, instead of 30 minutes, for disclosure of outcome of the meeting of the board of directors that concludes after trading hours. An additional time of 72 hours, instead of 24 hours, would be given for disclosure of litigations or disputes involving claims against the listed entity subject to maintaining such information in structured digital database as specified.

SEBI introduced a single filing system for listed entities to file relevant reports, documents etc. on one exchange, which will be automatically disseminated at the other exchanges. 

Mode of trading
In addition to the current mode of trading, the stock brokers (QSBs) would now be required to provide either the facility of trading supported by blocked amount in the secondary market (cash segment) using UPI block mechanism (ASBA-like facility for the secondary market) or the 3-in-1 Trading Account facility, with effect from February 1, 2025.

Clients of the QSBs will have the option, to either continue with the existing facility of trading by transferring funds to Trading Members (TMs) or opt for the facility, as provided by the QSB.

Insider trading

SEBI has decided to expand the scope of connected person, which would increase scope of prohibition of insider trading regulations. It would bring within its ambit many more persons (viz, a person sharing household or residence with a ‘connected person, a firm or its partner or its employee in which a ‘connected person’ is also a partner etc), who are indirectly associated with securities market through intermediaries, fiduciaries or being distant relatives of persons working in listed companies.

"A lot of awareness would be required amongst these persons also to ensure that amended provisions are effectively implemented," said Joshi of MMJC and Associates.

IMF Lite
SEBI introduced a new framework called Mutual Funds Lite (MF Lite) to simplify the regulatory environment for passively managed mutual fund schemes. The move is expected to open the door for more entities to enter the mutual fund market by easing some of the existing restrictions. The MF Lite framework reduces the barriers related to net worth, track record, and profitability for sponsors, making it easier for new players to start passively managed funds. Trustees will also face fewer compliance burdens, and the approval process for launching passive schemes will be streamlined, with reduced disclosure requirements. This simplified approach aims to boost market participation, increase investment options for investors, and improve liquidity in the mutual fund space.