Market Reforms: SEBI Amends Existing Norms

IAS Prelims 2023

The Securities and Exchange Board of India (SEBI) is the regulator for the securities market in India. It was established in the year 1988 and given statutory powers on 30 January 1992 through the SEBI Act, 1992.

SEBI has enjoyed success as a regulator by pushing systematic reforms aggressively and successively. Followin are its latest reforms:

Settlement Regulations:

SEBI will provide incentives to defaulters coming on their own to settle cases before start of enforcement action while excessive delays in filing of settlement applications would be liable for higher charges.

In this regard, the board of SEBI (Securities and Exchange Board of India) approved various amendments to existing norms for settlement of administrative and civil proceedings.

With the amendments, SEBI would have power to charge interest in case of excessive delays in filing of applications or payment of settlement amount apart from providing incentive for defaulters to come “voluntarily on their own, before initiation of investigation or enforcement action“.

The amended norms would also pave the way for settlement notice before issuance of a formal show cause notice, except those that are excluded from settlement.

Among others, re-application of rejected or withdrawn applications in deserving cases, subject to payment of additional fees and interest would be permitted.

In this regard, SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014 would be amended.

As part of efforts to further empower stock exchanges, SEBI board has decided to allow bourses penalise listed companies in case they violate ICDR (Issue of Capital and Disclosure Requirements) Regulations.

With these changes, stock exchanges would have power to enable actions such as imposition of fines and suspension of trading.

Merger Reforms:

The shareholding of pre-scheme (scheme of arrangement for merger) public shareholders of the listed entity and the Qualified Institutional Buyers (QIBs) of the unlisted company, in the post scheme shareholding pattern of the “merged” company shall not be less than 25 per cent.

The objective is to have wider public shareholding and to prevent very large unlisted company to get listed by merging with a very small company.

Unlisted company can now be merged with a listed company if it is listed on a stock exchange having nationwide trading terminals.

Disclosure Norms:

To improve disclosure standards in case of merger of an unlisted company with a listed company, SEBI said that the unlisted company has to disclose material information as specified in the format for abridged prospectus.

However, schemes which provide for merger of a wholly-owned Subsidiary (WoS) with the parent company shall not be required to be filed with SEBI. Such schemes shall be filed with stock exchanges for the limited purpose of disclosures only.

To prevent issue of shares to select group of shareholders instead of all shareholders as a result of a scheme, SEBI clarified that the pricing formula specified under SEBI Regulations would apply.

Public shareholder approval:

To ensure larger participation of public shareholders, SEBI said public shareholder approval through e-voting would be required if it resulted in reduction in the voting share percentage of pre-scheme public shareholders by more than 5 per cent of total capital of merged entity.

This would also be applicable to schemes involving transfer of whole or substantially the whole of the undertaking of a listed company and consideration for such transfer is not in the form of listed equity shares.

Schemes involving merger of unlisted subsidiary with listed holding company where the shares of the unlisted subsidiary have been acquired by the holding company directly or indirectly from the promoters/promoter group are also required to receive public shareholder nod through e-voting.