The Securities and Exchange Board of India (Sebi) approved a revamp of initial public offering (IPO) norms and the governance framework for stock exchanges and depositories. The regulator also signalled moves to bring chartered accountants and company secretaries under its ambit.
The board eased and updated IPO rules to bring them in line with current laws and market structure, recognising a wider set of institutional investors such as private equity funds, insurance companies and commercial banks that can be counted toward the promoter's contribution in companies. It cut the requirement for financial disclosures to three years from five, broadened the anchor investor category by including insurance companies, private equity funds and venture capital funds. Announcement of the price band can now be made two days before the issue opens from five now.
“The regulatory changes proposed in the ICDR (Issue of Capital and Disclosure Requirements) are very progressive and good both for issuers and investors,” said Ramesh Srinivasan, managing director and CEO of Kotak Investment Banking. “Issuers will benefit from rationalised disclosure requirements… and the concept of materiality introduced for certain disclosures.”
There is a greater focus on disclosures of related party transactions and alignment with Indian Accounting Standard requirements besides the introduction of the prospectus summary section that will offer a snapshot of the companys health, he said.
“In addition to alignment of the ICDR with other regulations like the 2013 Companies Act and the LODR (Listing Obligations and Disclosure Requirements), Sebi has taken market feedback and proposed reduction in the time between issue of price band and issue opening from five to two working days,” he said.
ET had reported June 20 that the board would be discussing the aforementioned ICDR changes.
The regulator has tightened the definition of group companies. Companies will have to specifically clarify they includes units with which there are related party transactions during the period for which financial information is disclosed.
The shareholding threshold for identifying a promoter group as such has been revised to 20% from 10%.
The proposed ICDR regulations have comprehensive chapters dedicated to issuance types. Within each chapter, the regulations are aligned to the process flow to make observance easier. Obsolete regulations have been scrapped while several have been amended to bring them in line with contemporary market practices. Besides, all circulars, informal guidance and FAQs (frequently asked questions) have been suitably incorporated, Sebi said.
The board also approved a major recast of rules for the appointment of top executives at stock exchanges, clearing corporations and depositories based on the recommendations of the committee headed by former Reserve Bank of India deputy governor R Gandhi.
The regulator said a person can serve as managing director of a stock exchange for a maximum two terms of up to five years each, while independent directors on the boards of stock exchanges can now serve for a maximum three terms of three years each.
“After the first term, the appointment process for managing director should be conducted afresh,” Sebi said.
The regulator has also modified the definition of key management personnel to include any person who directly reports to the CEO or director of a stock exchange or depository or any person up to two levels below MD/CEO or as identified by the nomination and remuneration committee.
Stock exchanges will also have to disclose the ratio of compensation paid to key management personnel in relation to the median paid to all employees, Sebi said.
The regulator will soon issue a discussion paper that will put the onus on chartered accountants, company secretaries, cost accountants, valuers and monitoring agencies to get companies to comply with securities regulations and act in the interest of public shareholders. Currently, most of them are not regulated by Sebi.
“Investor confidence is fundamental to the successful operation of the securities market and it stems largely from credible and reliable reporting of disclosure, financial information, compliance with securities regulations,” Sebi said. “In this regard, fiduciaries in the securities market have a very significant role to play.”
Securities lawyers said they were surprised by the move.
“The issuance of consultation paper for amendment of various Sebi regulations in respect of entities undertaking third-party assignments under securities laws is startling,” said Yogesh Chande, partner, Shardul Amarchand Mangaldas. “It has traditionally been a contentious issue before judicial and quasi-judicial foras as to whether Sebi has jurisdiction over such service providers or not.”