Sebi board meeting: PMS rules overhaul, FPI commodity trades among key decisions to watch out

A Sebi board meeting on Thursday (September 24) is likely to consider a wide set of capital-market reforms at its meeting with changes to portfolio management services, settlement rules, accredited investors, commodity derivatives and REIT-InvIT fundraising.

The board may take up around a dozen proposals, according to reports, many of which have already gone through the consultation route. The agenda comes at a time when the regulator is trying to widen market participation, reduce regulatory friction and deepen long-term capital pools, while keeping investor protection safeguards intact.

PMS overhaul in focus

One of the biggest proposals before the board is a revamp of Portfolio Management Services regulations. Sebi has proposed several changes to the PMS framework, including allowing discretionary portfolio managers to invest in pre-IPO securities and unlisted debt. Portfolio managers may also be allowed to invest in overseas markets.

A new MF-PMS category is also proposed. This would allow PMS products that invest only in mutual funds, with a lower entry barrier compared with regular PMS products.

The regulator has also proposed changes to derivative limits for discretionary PMS, qualification requirements for principal officers, net worth norms and the definition of related party. Another proposal would allow independent fund managers to operate under registered PMS players.

If cleared, the changes could widen the PMS market and give fund managers more flexibility in portfolio construction.
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Accredited investor pool may widen

The Sebi board is also expected to consider changes to the accredited investor framework. Under the proposal, individuals holding securities-market assets of Rs 5 crore and body corporates with securities-market assets of Rs 20 crore may qualify as accredited investors. This would be in addition to the existing income and net-worth criteria.

The move is aimed at expanding the pool of sophisticated investors who can access products such as AIFs with more flexibility. Sebi’s proposal indicates that the eligible accredited investor base could expand to around 4 lakh, compared with the existing AIF investor base of about 1 lakh.

Settlement rules

The board may also review Sebi’s proposed overhaul of settlement regulations. The draft framework seeks to simplify how settlement amounts are calculated. The regulator has proposed changes that could make settlement a more practical route in enforcement matters while retaining deterrence.

The proposed changes include lower values linked to the stage of proceedings in some cases, a more balanced treatment of mitigating and aggravating factors, and a revised approach to determining base amounts.

The draft also seeks to clarify how defaults are counted, how repetitive defaults are treated, and how wrongful gains or investor losses are dealt with. Wrongful gains may be factored only towards disgorgement rather than being counted again in the base amount.

Other proposals include lower additional amounts for refiling withdrawn applications, removal of surcharge for settling multiple proceedings, more standardised interest rates on disgorgement and a weighted-average method for interest calculation in cases involving many transactions.

Common ad code for Sebi-regulated entities

A common advertisement code for all Sebi-regulated entities may also come up before the board. The regulator has proposed replacing different entity-specific and exchange-specific advertisement codes with one unified framework. The proposal also seeks to move from mandatory prior approval to post-issue reporting within 24 hours.

Another important change is the possible permission for celebrity endorsements at the brand or entity level, subject to conditions and prior approval. The aim is to reduce regulatory overlap and bring consistency across regulated entities.

FPIs may get wider commodity access

Sebi may also consider allowing foreign portfolio investors to participate in physically settled non-agricultural commodity derivative contracts on recognised domestic exchanges. At present, FPIs are allowed in cash-settled non-agricultural commodity derivatives and commodity indices, except deliverable options contracts. The proposed change would allow them into non-cash-settled contracts, subject to safeguards.

The move is aimed at improving liquidity and institutional participation in India’s commodity derivatives market.

REITs and InvITs on agenda

The board may also take up proposals linked to REITs and InvITs. One proposal would allow REITs and listed InvITs to issue depository receipts backed by their units. This would give them a route to raise foreign capital through overseas exchanges. The framework may allow fresh DR issuance against new units as well as transfer of existing units by unitholders to foreign depositories. Indian residents and NRIs would not be eligible to hold these DRs.

Another proposal would allow REITs and InvITs to invest minority stakes in under-construction third-party projects within existing exposure limits. Sebi may also consider reducing the OFS cooling-off period and recognising remote common infrastructure as real estate.

The board may also deliberate proposals related to AIFs, certification requirements for associated persons, research analyst call recordings and vault manager regulations.

Disclosure: This article has been written by Podishetti Akash, who is not a SEBI-registered Research Analyst or an Investment Adviser. Podishetti Akash and her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.