SEBI makes IPO grading mechanism voluntary

• The Securities and Exchange Board of India (SEBI) has approved the SEBI (Procedure for Search and Seizure) Regulations, 2013, made on the lines of the provisions in the Income Tax Act, 1961’. This would provide detailed procedures for search and seizure by the regulator.
• This would also help the market regulator execute search operations and ensure safe custody of any books of accounts or other documents that are seized, as per the Securities Laws (Amendment) Second Ordinance, 2013.
• The Ordinance has conferred direct powers on SEBI Chairman to authorise the investigating authority or any other SEBI officer to search any premises where incriminating documents are lying and seize such documents for the purpose of investigation.
• The board has also decided to allow public financial institutions and scheduled banks, issuers authorised to make public issue tax free secured bonds, infrastructure debt funds non-banking financial companies (NBFC) to file shelf prospectus.
• Earlier, the Companies Act, 1956, had allowed only banks and public financial institutions to file shelf prospectus. However, the Companies Act, 2013, enables SEBI to specify the companies, which can be allowed to file shelf prospectus.
• SEBI also approved the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2013, which includes guidelines for determining the settlement terms.
• However, SEBI has excluded serious offences such as insider trading, from the scope of settlement. In order to impart transparency in the process, the roles of internal committees and high powered advisory committee are specifically defined and the regulations also provide for terms of settlement in monetary as well as non-monetary terms or combination of both.
• SEBI also made IPO grading mechanism ‘voluntary’ instead of ‘mandatory’, amending SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. And to align with the principles laid down by Financial Stability Board (FSB) on reducing the reliance on Credit Rating Agencies, the SEBI Board has approved the proposal to make the IPO grading mechanism ‘voluntary’ as against the current provision of the same being ‘mandatory’.

New rules for foreign investors

• The government has agreed to provide similar tax treatment to foreign portfolio investors (FPIs), as available to FIIs now. The three categories of foreign portfolio investors – FIIs (foreign institutional investors), sub-accounts and qualified foreign investors (QFIs) would be given similar tax treatment as available to FIIs now.
• The new rules aim to bring all foreign investors under a common framework called the SEBI (Foreign Portfolio Investors) Regulations, 2013. These measures come at a time when the rupee has weakened considerably against the dollar and recently hit its all-time low levels of 60 against the U.S. currency. Also, FIIs have been pulling out money from the Indian debt market, which has resulted in lower yields on government bonds.

Related information:

Foreign portfolio investment (FPI):

• FPI is the entry of funds into a country where foreigners make purchases in the country’s stock and bond markets, sometimes for speculation.
• It is a usually short term investment (sometimes less than a year, or with involvement in the management of the company), as opposed to the longer term Foreign Direct Investment partnership (possibly through joint venture), involving transfer of technology and “know-how”.
• For example, Ford Motor Company may invest in a manufacturing plant in Mexico, yet not be in direct control of its affairs. Foreign Portfolio Investment (FPI): passive holdings of securities and other financial assets, which do NOT entail active management or control of the securities’s issuer.
• FPI is positively influenced by high rates of return and reduction of risk through geographic diversification. The return on FPI is normally in the form of interest payments or non-voting dividends.

To know more about Financial Stability Board (FSB):

• The FSB has been established to coordinate at the international level the work of national financial authorities and international standard setting bodies and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies.
• It brings together national authorities responsible for financial stability in significant international financial centres, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts.
• The FSB is chaired by Mark Carney, Governor of the Bank of England. Its Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.
• As obligations of membership, members of the FSB commit to pursue the maintenance of financial stability, maintain the openness and transparency of the financial sector, implement international financial standards, and agree to undergo periodic peer reviews, using among other evidence IMF/World Bank public Financial Sector Assessment Program reports.