InvestorQ : What were some of the major highlights of announcements made by SEBI in its board meeting last week? Are they likely to impact markets?
Debbie Mascarenhas made post

What were some of the major highlights of announcements made by SEBI in its board meeting last week? Are they likely to impact markets?

Crowny Pinto answered.
2 years ago

In fact, on the 20th of November when the SEBI board met, they put forth a slew of interesting reforms to promote ease of business. While a number of issues were covered by SEBI, the key announcements were in relation to PMS services, rights issues and default disclosures. Here is how they will impact the markets in the coming weeks.

Long overdue tweak to the PMS model

PMS services give the best combination of growth and the leeway to select the stock of your choice. Despite the costs, PMS has been a solid asset class to create wealth. Firstly, SEBI has enhanced the net worth requirement for PMS services providers from Rs.2 crore to Rs.5 crore. This will ensure that only the strong and serious players will enter the PMS business with a long term perspective. Secondly, the regulator has been concerned that many retail investors get into PMS without understanding risks or the loss implications. To curb this, SEBI has stipulated that the minimum corpus for participating in a PMS will be raised from Rs.25 lakhs to Rs.50 lakhs. This will likely bring in more seasoned type of investors who understand the risks. Lastly, discretionary PMS can invest in listed securities while non-discretionary PMS cannot have more than 25% in unlisted securities at any point of time.

Adding more power to rights issues

SEBI has reduced the time for rights issue from 55 days to 31 days. This will ensure faster rotation for investors and companies also get access to funds faster. Secondly, SEBI is also introducing trading in rights entitlement (RE) in demat mode to make it more transparent. Thirdly, rights will be only allotted in demat form even if your current holding is in physical form. Lastly, SEBI has also stipulated that all rights issue applications must only be made through the ASBA (applications supported by blocked amounts) route for better transmission. All in all, the regulator has attempted to bring in more transparency and speed to the rights issue process.

Loan default reporting by listed companies

Loan default reporting has been a major bone of contention with banks, corporates and rating agencies blaming one another. Finally, SEBI has given a workable solution. The cases of IL&FS, Jet and RCOM have highlighted the need to have better and quicker disclosure of defaults. Some time back, SEBI tried to make default disclosure in 24 hours mandatory. But that was just too difficult to implement. In its latest board meeting, stipulated that all defaults in interest or principal must be disclosed by listed companies in 24 hours if it remains unpaid for 31 days. This gives some breather for the banks and companies. It also ensures that the resultant downgrade in the bonds is a gradual process and does not create shocks. After seeing the tumult in the bond markets in the last few months, that should surely come as a positive surprise.