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SEBI’s September 2026 Meeting: Opening New Routes for Capital and Participation

SEBI logo displayed on the exterior wall of a modern glass office building, partially framed by palm leaves.

The September 2026 meeting of the Securities and Exchange Board of India comes at a time when India’s capital markets are expanding not only in scale, but also in the range of instruments through which capital is being raised and deployed. The first few months of FY2026-27 alone saw REITs and InvITs mobilise INR 10,844 crore including INR 6,005 crore through REITs and INR 4,839 crore through InvITs and INR 2,62,142 crores through equity issuances, according to September 2026 Bulletin by SEBI. That level of activity makes the question of how these vehicles can access a wider investor base in an efficient manner, increasingly relevant.

Against this backdrop, three decisions taken at SEBI’s 24 September 2026 Board meeting stand out. The significance is particularly evident in the case of REITs and InvITs, where the decision potentially creates a new bridge between India’s listed real-asset platforms and overseas pools of capital.

 

REITs and InvITs Look Beyond the Domestic Unit Market

SEBI has approved a framework enabling depository receipts (DRs) to be issued against units of REITs and publicly listed InvITs. The proposal had been put out for consultation in August 2026, following which the Board approved amendments to provide the enabling framework. The detailed operational framework is to follow separately.

This is more than a change in instrument nomenclature. A DR structure can allow an overseas investor to obtain exposure to an underlying Indian security through a security issued and traded in another market. For REITs and InvITs, that creates an additional channel for accessing foreign capital without requiring the overseas investor to participate directly in the Indian unit market in the same manner as an onshore investor.

The importance of this distinction lies in market access. India’s REIT and InvIT frameworks have already created listed vehicles through which investors can obtain exposure to income-generating real estate and infrastructure assets. The DRs route potentially extends that investment proposition to investors who may be more accustomed to accessing securities through international or IFSC-based market infrastructure. Given the push for monetization of certain classes of assets which have offshore presence, such as ships and petroleum infrastructure, this move may allow these assets to be pooled and monetized through the InvIT route more efficiently and to a wider audience.

We already witness, how Singapore’s regulatory and exchange infrastructure demonstrates that depository receipts can be used to connect securities markets without eliminating the regulatory framework applicable to the underlying securities. SGX’s rules, for example, recognise global depository receipts as a distinct listed instrument and require the underlying securities to remain subject to the rules of their home exchange. Its framework also requires the depository to be a supervised financial institution with appropriate expertise.

For Indian REITs and InvITs, the practical question now shifts from whether foreign investors can obtain exposure to whether the DRs structure can make that exposure sufficiently efficient and familiar to attract meaningful overseas participation.

 

PMS Moves From a Narrower Mandate to a Broader Investment Platform

The second major development is the comprehensive review of the PMS framework. SEBI’s July 2026 consultation paper had proposed a substantial reconsideration of the investment universe and operating framework for portfolio managers.

SEBI’s decision now moves the framework further towards a model in which PMS can serve investors across a broader range of market opportunities. Some of the key changes approved include permitting portfolio managers to participate in IPOs and primary-market debt issuances, and providing greater flexibility in asset classes especially overseas securities and specified unlisted debt, subject to the applicable conditions. SEBI has also approved a dedicated route for portfolio management services focused on investment in mutual funds, with a minimum investment threshold of INR 25 lakh.

This matters because PMS has historically occupied a distinct space between standardised pooled investment products and fully bespoke investment management. SEBI has clearly recognized that the Indian investment services market is expanding with a wider range of investors needing access to boutique investment services and not simply pooled investment schemes. Expanding its permissible investment universe changes the proposition from simply how a portfolio is managed to, more fundamentally, what opportunities the portfolio manager can access on behalf of the client, which is also a recognition that Indian investors are broadly looking to tap into niche growth sectors offered by international markets, beyond the more generalized mutual fund schemes.

The inclusion of IPOs and primary debt is particularly relevant. It brings PMS closer to the primary-market ecosystem, potentially allowing portfolio managers to consider securities at the point of issuance rather than restricting portfolio construction primarily to instruments already available in the secondary market. This will make PMS an important part of the non-institutional investors category in the coming days and may also have a potential effect of reducing reliance on borrowing for investment in IPOs. Further, independent fund managers, who can utilize the services framework of a registered portfolio manager will help clarify the structures market intermediaries can utilize to assist investors.

The overseas investment component is equally significant in the context of wealth management. It reflects the growing reality that sophisticated Indian investors increasingly view portfolio construction through a cross-border lens. At the same time, SEBI’s approach remains conditional rather than unrestricted, reinforcing the principle that greater investment flexibility must operate within defined regulatory parameters.

The INR 25 lakh PRIM route is perhaps the clearest indication that SEBI is attempting to create segmented regulatory architecture rather than a one-size-fits-all PMS model. Instead of treating all PMS activity identically, the framework recognises a distinct category for investors seeking professional management focused on mutual-fund investments.

 

FPIs Enter a Deeper Commodity-Market Role

The third decision extends institutional participation in India’s commodity markets. SEBI has approved a framework permitting FPIs to participate in physically settled, non-agricultural commodity derivative contracts, subject to the prescribed framework and safeguards. The proposal had been considered through SEBI’s August 2026 consultation on FPI participation in exchange-traded commodity derivatives.

The significance is not simply that another class of investors will be permitted into another asset class. Commodity derivatives perform important price-discovery and risk-management functions, and greater institutional participation can potentially broaden the range of market participants contributing to those functions.

 

Making Indian Markets More Accessible

Viewed separately, the three measures address REITs and InvITs, portfolio management and commodities. Viewed together, they suggest a broader shift in India’s securities-market architecture.

The REIT/InvIT decision creates a potential cross-border capital-raising channel. The PMS overhaul expands the investment universe available to professionally managed portfolios. The FPI decision broadens institutional participation in commodity derivatives.

What connects them is not deregulation for its own sake. It is the attempt to make India’s market infrastructure more compatible with the ways in which sophisticated domestic and international capital is already deployed globally.

The decisions taken in 24 September meeting is an evolution of India’s capital-market architecture. The direction is increasingly clear: rather than creating isolated products for isolated investor categories, regulation is beginning to focus on building more connected routes between Indian securities, global capital and institutional investment strategies.

The real measure of these reforms will therefore be whether the additional routes created on paper translate into deeper participation, more efficient capital formation and greater choice without compromising the safeguards on which market confidence ultimately depends. The effectiveness of the REIT/InvIT, DRS framework will depend substantially on the detailed rules governing issuance, eligible jurisdictions, disclosure, settlement and investor participation.

 

Authors: Pracheta Bhattacharya

Building Trustworthy AI: What Capital Market Participants Should Be Doing Today

Introduction

The regulatory conversation around artificial intelligence in capital markets is moving from identifying risks to considering how those risks can be supervised. IOSCO’s 2026 Supervisory Toolkit for AI Use in Capital Markets is an important development in that progression. The Toolkit is intended to support securities regulators in supervising AI systems used by regulated entities, including through practical supervisory tools covering areas such as governance and risk management, third-party and outsourcing arrangements, disclosure, and recordkeeping and reporting.

For market participants, however, the significance of these developments extends beyond the question of what a regulator may eventually ask during an inspection. The more immediate question is whether firms can explain, document and govern the AI systems already being used across their businesses.

This does not necessarily require a separate AI compliance regime. It requires firms to understand where AI is being deployed, what decisions it influences, who remains accountable for those decisions, and whether existing governance, technology-risk and operational-resilience frameworks can address the associated risks.

This is particularly relevant as AI becomes embedded in business-critical technology environments. An AI inventory can provide not only visibility into where AI is being used, but also help firms identify which AI-enabled processes support critical or time-sensitive operations and what arrangements exist if those systems become unavailable.

 

Start With Visibility: Know Where AI Is Being Used

The first governance challenge may be more basic than model validation or explainability: knowing where AI is actually being used.

AI adoption does not necessarily occur through a single centrally approved project. Different business, technology, compliance and operations teams may adopt tools independently, including externally hosted generative AI applications and AI-enabled products embedded within existing software.

That creates a practical governance question: can an institution identify the AI systems being used across its front, middle and back offices?

An effective internal AI inventory can provide that visibility. It could identify the purpose of each system, the business function in which it is deployed, the data it accesses, whether it influences decisions affecting clients or markets, the relevant technology or service provider, and the controls applied to its use.

This is particularly important because not every AI application presents the same level of risk. A tool used to summarise publicly available documents may require a different control environment from a system that contributes to investment decisions, executes trades, assesses clients or supports market surveillance.

The objective should therefore be risk-based visibility, rather than treating every AI application identically.

IOSCO’s 2025 report notes that firms are developing governance and risk-management frameworks covering areas including AI strategy, model and data risks, third-party risks, accountability and human oversight.

 

Treat AI as a Lifecycle, Not a One-Time Approval

A second consideration is that AI governance cannot end when a system is approved for deployment.

AI systems can change through retraining, changes in data, model updates, modifications by vendors or changes in the way employees use them. Consequently, the relevant question is not simply whether a model was appropriate when it was introduced, but whether it remains appropriate for its intended use.

A lifecycle-based approach can therefore be more effective than a one-time approval process. Before deployment, firms can assess the intended purpose, data sources, performance characteristics and potential impact of the system. During deployment, monitoring can focus on accuracy, reliability, unexpected outputs and changes in performance. Lifecycle governance should also address material model or vendor changes, incidents, system unavailability and the measures required to intervene, suspend an AI-enabled process or revert to an alternative process where necessary.

This becomes particularly important for generative AI. Outputs may appear plausible while containing errors, creating a different type of operational risk from conventional deterministic software.

For capital market participants, this reinforces the importance of maintaining appropriate human oversight for material decisions, alongside defined escalation, intervention and fallback mechanisms. IOSCO identifies human oversight as an important governance principle, noting that AI should augment rather than replace human decision-making and judgement. The objective is not to eliminate human involvement from every AI-enabled process. It is to determine where human judgement remains essential and how that judgement should operate alongside the system, including when the system produces an unexpected output or becomes unavailable.

The objective is not to eliminate human involvement from every AI-enabled process. It is to determine where human judgement remains essential and how that judgement should operate alongside the system.

 

Third-Party AI Requires More Than Vendor Due Diligence

AI governance becomes more complicated when firms do not develop the underlying technology themselves.

Capital market participants may depend on cloud infrastructure, foundation models, specialist AI providers or AI functionality embedded within third-party applications. This can create dependencies that extend beyond traditional outsourcing arrangements and can introduce questions of concentration, substitutability and operational resilience. Where multiple critical processes depend on the same technology provider, cloud infrastructure or underlying model, a disruption or material change at that level may affect several functions simultaneously.

The IMF has highlighted the possibility of increasing concentration of AI systems and models among key providers and market participants. It also notes that accelerated technology adoption can create supervisory challenges where authorities need to understand dependencies and potential concentration risks.

For firms, the practical implication is that procurement should not be the end of the assessment. Contracts, data arrangements, access controls, information-security obligations, incident notification, business continuity and rights to obtain relevant information may all become important considerations depending on the use case.

The critical question is:

“If an AI system becomes unavailable, produces a materially incorrect output, changes materially following a vendor update or becomes compromised, can the firm detect the problem, intervene, switch to an alternative process and remain operational”

These questions connect AI governance directly with existing frameworks for third-party risk, outsourcing, cybersecurity, business continuity and operational resilience.

 

Documentation and Accountability Will Become Increasingly Important

As AI becomes integrated into business-critical processes, the ability to demonstrate how it is being used may become almost as important as the technology itself.

A firm should be able to establish, at an appropriate level of detail, what an AI system is intended to do, who approved its use, what data it relies upon, what controls apply to it, how its performance is monitored, what material changes have occurred and who is responsible for addressing failures or deciding whether an AI-enabled process should continue, be suspended or revert to an alternative process.

This does not mean that every AI system requires extensive technical documentation accessible to every employee. Rather, documentation should be proportionate to the significance of the application and sufficient to support oversight, audit and accountability.

IOSCO’s 2025 analysis identifies accountability, transparency, reliability, security, risk management and human oversight among the principles reflected in governance approaches being adopted by larger financial firms.

This is also where AI governance intersects with existing legal responsibilities. The introduction of an AI system does not, by itself, transfer responsibility from the regulated entity to the technology provider or the model.

The more AI influences consequential decisions, the more important it becomes for firms to maintain a clear chain of accountability.

 

What Should Indian Market Participants Take from This?

India does not currently have a single, dedicated framework governing all uses of AI across securities markets. That, however, does not place AI governance outside the existing regulatory architecture. Rather, AI-related considerations are emerging alongside broader requirements concerning technology governance, cybersecurity, operational resilience and business continuity within the securities-market ecosystem.

SEBI’s May 2026 advisory on advanced AI tools for vulnerability detection illustrates one aspect of this emerging approach. The advisory highlighted the potential use of AI for vulnerability detection and autonomous or agentic mitigation, while also drawing attention to the risks posed by AI-accelerated cyber threats and the need for continuous vulnerability management. This technology-risk focus has subsequently been accompanied by further measures concerning the resilience of market infrastructure.

In August 2026, SEBI introduced an IT Resilience Index for Market Infrastructure Institutions (MIIs), adding a more structured dimension to the assessment of technology resilience. SEBI has also separately addressed the alignment of its cyber incident reporting framework with the FIRE format. In September 2026, SEBI further proposed measures to strengthen Business Continuity Plans and Disaster Recovery arrangements for MIIs. These developments are not AI-specific rules, but they are relevant to AI governance because AI-enabled processes increasingly operate within the same technology infrastructure and dependency chains that firms must keep resilient.

More broadly, SEBI has addressed the use and reporting of AI and machine-learning applications and systems by Market Infrastructure Institutions since 2019. Viewed together, these developments suggest that AI governance for Indian market participants cannot be considered in isolation from the wider technology, cyber-risk and resilience environment in which AI systems operate.

These developments should not be read as evidence of what a future comprehensive AI framework in India will contain. They do, however, demonstrate that technology governance is not an entirely new consideration for Indian securities-market participants.

For firms preparing for the next phase of AI adoption, the practical priority is therefore not to predict the precise form of future AI regulation. It is to establish whether existing governance structures can answer basic questions about AI inventory, accountability, data, third-party dependencies, human oversight, monitoring, incident response, business continuity and recovery. The ability to demonstrate how an AI-enabled process can be controlled during normal operations, and how the firm can intervene or continue critical activities when that process fails or becomes unavailable, may become increasingly important as supervisory expectations around technology resilience develop.

 

Conclusion

Responsible AI adoption in capital markets is increasingly becoming a question of institutional capability. As AI moves from experimentation into critical business processes, firms need sufficient visibility, governance, accountability and resilience to understand how these systems operate, how their dependencies are managed and how risks will be addressed when circumstances change.

The emerging international approach does not suggest that AI should be treated as inherently incompatible with financial markets. Instead, it points towards a model in which innovation is accompanied by appropriate governance, risk management, human oversight, transparency and resilience. IOSCO’s latest supervisory work reinforces this direction by giving regulators practical tools to assess how regulated entities govern and oversee their use of AI. At the same time, developments in securities-market technology and operational resilience demonstrate that AI governance is increasingly part of a broader conversation about how financial institutions manage critical technology and third-party dependencies.

For market participants, preparing for this environment does not necessarily mean waiting for a dedicated AI rulebook. It means building the institutional ability to demonstrate that AI is being used deliberately, proportionately and accountably, while ensuring that critical AI-enabled processes can be monitored, challenged, interrupted and, where necessary, supported by appropriate fallback and recovery arrangements. The next question is therefore not simply how firms should govern AI, but how emerging AI supervisory expectations may become integrated with the broader regulatory architecture for technology, cybersecurity and operational resilience in capital markets.

 

Authored by: Anshu Bansal, Partner, and Rashmita Das, Legal Researcher.

SEBI’s Revised Open-Market Buy-Back Framework: A New Responsibility Architecture for Transaction Execution

Stacks of coins with rising financial graphs representing equity market growth

The Securities and Exchange Board of India’s revised framework for buy-backs marks a structural change in the execution and compliance architecture applicable to listed companies. Alongside reintroducing open-market buy-backs through the stock-exchange route with effect from August 1, 2026, SEBI has made the appointment of a merchant banker discretionary for buy-backs. Where a company does not appoint a merchant banker, functions previously vested/performed by merchant bankers are distributed among the company, its compliance officer, statutory auditor, secretarial auditor and the stock exchanges.

The significance of the revised framework therefore extends beyond the return of the stock-exchange route. It introduces an alternative model of transaction accountability: the regulatory functions associated with a buy-back remain, but their performance no longer necessarily depends upon the a a single category of registered transaction intermediary.

 

Regulatory background to the revived stock-exchange route

SEBI’s reconsideration of open-market buy-backs through stock exchanges followed changes in both the regulatory and taxation context. The April 2026 consultation paper noted that the earlier concerns underlying discontinuation of the route included the inability to identify whether a shareholder’s trade had resulted in participation in the buy-back and the resulting tax-induced inequity among public shareholders.

In reconsidering the route, SEBI recorded that the revised taxation framework had addressed the earlier concern regarding differential tax treatment. The April consultation paper also noted that execution under an order-driven market mechanism is determined through price-time matching, giving public shareholders an equal opportunity to participate under uniform conditions. SEBI further identified continuous price discovery and liquidity as features of the stock-exchange route.

The SEBI Board subsequently approved reintroduction of the route from August 1, 2026. The approved framework requires completion of an open-market buy-back through the stock exchange within 66 working days from its opening, with at least 40% of the amount earmarked for the buy-back to be utilised during the first half of the buy-back period.

 

Merchant banker appointment becomes discretionary

The change in the role of merchant bankers emerged from SEBI’s broader review and rationalisation of the SEBI Buy-Back Regulations. Under the framework considered in the May 2026 consultation paper, merchant bankers were mandatorily appointed and performed functions including filing-related activities, dissemination, escrow-related compliance and oversight of regulatory compliance.

SEBI’s review proceeded on three stated considerations. First, it observed that the securities market ecosystem had evolved through continuous disclosure mechanisms and enhanced governance frameworks. Second, it noted that several functions performed by merchant bankers were procedural or operational and capable of being performed by the company or other market infrastructure institutions. Third, the Board of Directors remained responsible for matters including correctness of disclosures, statutory compliance, the declaration of solvency and extinguishment of securities.

The May consultation paper proposed dispensing with mandatory merchant banker appointment and reallocating existing functions. The SEBI-approved framework, however, framed the final position as one of discretionary appointment: a company may appoint a merchant banker, but where it elects not to do so, the functions otherwise undertaken by the merchant banker are allocated across the company, compliance officer, statutory auditor, secretarial auditor and stock exchanges.

This distinction is material. The framework does not dispense with the underlying compliance functions merely because no merchant banker is appointed. Instead, it changes the identity of the actor responsible for performing particular functions.

 

A distributed model of transaction responsibility

The May consultation paper provides the clearest regulatory background to the redistribution exercise. Its Annexure I mapped existing merchant banker functions against proposed alternative responsibility holders. The company was proposed to assume responsibility for filing the letter of offer and public announcement, payment of applicable fees and ensuring that the relevant disclosure documents were true, fair and adequate. The company was also proposed to assume responsibility for the final report, ensuring the availability of funds and firm financial arrangements for implementation of the buy-back, and compliance with the relevant provisions of the Companies Act, 2013.

Certification and assurance functions were separated from these issuer responsibilities. The consultation proposed assigning certification of compliance with the Buy-Back Regulations and the due diligence certification function to the secretarial auditor. The Board decision subsequently identified both the statutory auditor and secretarial auditor among the actors to whom responsibilities are allocated where a merchant banker is not appointed.

The execution-side architecture similarly moves away from reliance upon a single intermediary. Under the consultation proposal, oversight and operation of escrow arrangements, including specified functions concerning bank guarantees, cash deposits, approved securities, invocation and release, were proposed to be assigned to the designated stock exchange. Certification relating to adequacy of sell orders and volume-weighted average price was also proposed to be undertaken by stock exchanges.

The consultation paper proposed assigning the merchant banker’s presence during extinguishment or destruction of securities acquired through an open-market buy-back, and verification of compliance with extinguishment requirements, to the company’s compliance officer.

The regulatory design, therefore, is one of functional separation. Issuer-side filing and funding responsibilities, independent certification, market-infrastructure oversight and internal compliance functions are allocated to different actors already done with some success forrights issues..

 

Execution safeguards under the revived route

The revised framework also modifies the mechanics of open-market execution. The SEBI decision records that, given the changed taxation framework and the prohibition on promoter participation in open-market buy-backs, transactions under the stock-exchange route will be treated as normal trading transactions. Accordingly, the earlier requirements for a separate trading window and display of the company’s identity as purchaser on the trading screen have been dispensed with.

This represents a material difference from the April consultation paper, which had proposed reintroducing the route by applying the existing framework under the SEBI Buy-Back Regulations and circulars issued thereunder. That paper referred to the then-existing framework, including restrictions on volume, timing of bid placement and the permissible price range for orders. The final Board-approved position expressly removes the separate-window and purchaser-identity requirements; accordingly, the consultation proposal should not be treated as an exact statement of the final execution architecture.

Other safeguards operate around participation and execution. Promoters and their associates cannot participate in the open-market buy-back, and their shares or other specified securities are required to remain frozen at the ISIN level during the buy-back period. SEBI stated that this measure is intended to prevent inadvertent dealing during the buy-back period, which is sagacious in the day and age of wealth managers and portfolio managers.

The framework also requires proposed buy-backs to continue to comply with minimum public shareholding requirements.

 

Disclosure and shareholder communication

The framework retains public disclosure as a central component of the transaction while adding a direct shareholder communication requirement. The SEBI decision provides that information regarding open-market buy-backs must be disseminated to shareholders electronically, in addition to the public announcement already made through newspaper advertisements.

The redistribution of responsibility is particularly relevant here. The May consultation paper proposed that filing and public-announcement responsibilities previously associated with the merchant banker be performed by the company itself.

Optionality in merchant banker appointment does not remove the disclosure framework. Where no merchant banker is appointed, the architecture instead places issuer-facing disclosure responsibilities directly within the company-led compliance process, while retaining independent and infrastructure-level functions with other identified actors.

 

Implications for the transaction execution ecosystem

The revised framework changes the institutional structure of buy-back execution without eliminating the underlying regulatory controls. For merchant bankers, their role remains part of the transaction commercial structure.

For listed companies, proceeding without a merchant banker does not create a reduced-compliance route. Filing, funding, certification, escrow oversight, transaction execution, extinguishment and final reporting remain regulated functions, but responsibility for them is allocated across the issuer and specified assurance, compliance and market-infrastructure actors.

The principal regulatory significance of the amendment therefore lies in the movement from mandatory intermediary-led coordination to function-specific accountability. The revised model preserves the regulatory components of a buy-back transaction while allowing companies discretion over whether those components are coordinated through an appointed merchant banker or discharged through the alternative responsibility architecture established by the framework.

Authored by: Sourav Modi, Partner and Rashmita Das, Legal Researcher.

JSA Analysis | SEBI Board Meeting – December 17, 2025 | Outcome

SEBI logo displayed on the exterior wall of a modern glass office building, partially framed by palm leaves.

The Securities and Exchange Board of India (“SEBI”) in its board meeting held on December 17, 2025, approved significant regulatory reforms across the capital market regime aimed at simplifying compliance, enhancing clarity, and promoting ease of doing business among other things. The approved measures will be implemented through subsequent notifications. Key highlights of the proposed amendments include the following:

SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018

  • The requirement of lock-in of shares at the time of Initial Public Offer (“IPO”)
    Regulation 17 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“SEBI ICDR”), which mandates a six-month lock-in on pre-issue share capital held by non-promoter shareholders (other than exempt categories), has been amended to account for shares which cannot be locked-in such as shares pledged prior to an IPO. Accordingly, depositories will be permitted to mark such securities as “non-transferable” for the relevant lock-in period while such shares remain pledged. Further, upon invocation or release of the pledge, the shares shall be automatically subjected to lock-in for the remaining period.
  • Requirement of Abridged Prospectus.
    SEBI has approved the introduction of a draft abridged prospectus at the Draft Red Herring Prospectus (“DRHP”) stage, in addition to the requirement of an abridged prospectus at the Red Herring Prospectus (“RHP”) stage. Regulations 34, 131 and 255 along with Part E of Schedule VI of the SEBI ICDR will be rationalised to standardise and simplify disclosures in the abridged prospectus. Consequently, it has also been proposed to dispense with the requirement to prepare a separate offer document summary in the DRHP and RHP, subject to consultation with the Central Government.

 

SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

  • Amendment to regulation 39 of SEBI LODR for dispensing with Letter of Confirmation
    Regulation 39 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI LODR”), has been amended to dispense with the requirement of issuing Letters of Confirmation (“LoC”) in respect of investor service requests involving cases where securities certificates are held in physical form, including issuance of duplicate certificates, transmission, and transposition etc. Pursuant to the amendment, subject to due diligence, Registrars and Share Transfer Agents (“RTAs”) or listed entities, shall directly credit the securities to the investor’s demat account.
  • Amendment to Regulation 40 of SEBI LODR for facilitating Transfer of Physical Securities
    According to the Regulation 40 of SEBI LODR, transfer of securities held in physical mode was discontinued with effect from April 01, 2019. SEBI has approved allowing holders of original physical share certificates and the original transfer deeds (executed prior to April 1, 2019) to lodge the securities during a specified window, subject to conditions set by the SEBI and due diligence by RTAs/listed companies. Cases involving disputes or fraud are excluded from such relaxation.
  • Aligning the timeline for transfer of unclaimed amount by an entity having listed non-convertible securities with Companies Act, 2013
    Regulation 61A of the SEBI LODR requires that any interest/dividend/redemption payment on listed non-convertible securities, unclaimed for 30 days shall be transferred to an escrow account within seven days, and unclaimed amounts in the escrow account for seven years shall be transferred to the Investor Education and Protection Fund (“IEPF”)/ Investor Protection and Education Fund (“IPEF”). This regulation did not prescribe maturity of the non-convertible securities as a pre-condition for transferring unclaimed amounts on such securities. Accordingly, SEBI has approved amendments to the SEBI LODR for transferring such payments for listed non-convertible securities to the IEPF/IPEF only once seven years from the date of maturity of such securities.
  • High Value Debt Listed Entities
    SEBI has approved changes to the regulatory framework governing High Value Debt Listed Entities (“HVDLEs”). The proposed amendment includes:

    • The threshold for identification as an HVDLE has been increased from ₹1,000 crore to ₹5,000 crore of outstanding listed non-convertible debt.
    • Regulation 62L (1) has been amended by replacing the term “income” with “turnover” for determining material subsidiaries.
    • Provisions in relation to board of directors and its committees: Prior shareholder approval by special resolution for continuation of a non-executive director beyond 75 years of age should be sought before the director crosses the age of 75 years. Exclusion of time taken for obtaining regulatory or statutory approvals from timeline for acquiring shareholder approval for director appointment. Nominee directors appointed by regulators, debenture trustees, courts or tribunals are exempt from seeking shareholder approval. Vacancies in board committees must be filled within three months. The board recommendations to shareholders must record explicit rationale.
    • Shareholder approval for sale or disposal of assets by a material subsidiary to another subsidiary within the same group has been dispensed with.
    • Entities emerging from the corporate insolvency resolution process are permitted three-month time to fill key managerial personnel vacancies, subject to the presence of at least one full-time key managerial personnel.
    • A framework has been approved for the appointment, re-appointment, removal and disqualification of secretarial auditors.
    • Provisions relating to related party transactions have been harmonised with provisions as applicable to equity-listed entities, while retaining debt-specific safeguards.

 

SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021

SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (“NCS Regulations”) have been amended to permit issuers to offer additional interest or a discount in public issues of debt securities to specified investors (retail, senior citizens, women, armed forces personnel and their widows/widowers). Incentives apply only to the initial allottee and do not continue on transfer or transmission.

 

SEBI (Stock Brokers) Regulations, 1992

SEBI approved the replacement of the SEBI (Stock Brokers) Regulations, 1992 (“1992 Regulations”) with the SEBI (Stock Brokers) Regulations, 2025 (“SB Regulations 2025”). The new regulations will consolidate provisions, update key definitions under Regulation 2(1) of the 1992 Regulations, including clearing member, professional clearing member, proprietary trading member, proprietary trading and designated director. Further, the SB Regulations 2025 also permit electronic maintenance of records, provide for joint inspections, remove obsolete provisions, and position stock exchanges as first-line regulators.

 

SEBI (Mutual Funds) Regulations, 1996

SEBI approved the replacement of the SEBI (Mutual Funds) Regulations, 1996 with the SEBI (Mutual Funds) Regulations, 2026 (“MF Regulations 2026”). The revised framework will consolidate provisions on eligibility of mutual fund sponsors, roles and responsibilities of asset management companies and trustees, prudential investment limits, and valuation norms. The total expense ratio (“TER”) framework has been restructured by introducing a base expense ratio (“BER”), which excludes statutory and regulatory levies. Statutory charges such as Securities Transaction Tax, Goods and Services Tax, stamp duty, SEBI fees, and exchange charges are now to be charged on actuals, over and above the BER, with the TER defined as the aggregate of BER, brokerage, and such statutory or regulatory levies. Brokerage limits have been rationalised and delinked from statutory levies. Further, the additional five basis points expense allowance linked to exit loads has been withdrawn.

 

Measures for regulation of activities of Credit Rating Agency(“CRA”)

SEBI has amended the Credit Rating Agencies Regulations, 1999 (“CRA Regulations”) to allow CRAs to rate financial instruments regulated by other financial sector regulators (“FSR”) even without specific rating guidelines. Appropriate safeguards have been put in place which include segregation and labelling of SEBI-regulated instruments from those under other FSR in reports, press releases, websites, and marketing materials, providing upfront disclosures to new clients and notifying existing clients about activities under other FSRs, and clarifying that SEBI investor protection does not apply to such activities. Any net worth requirements imposed by other FSRs are in addition to SEBI’s requirements, and CRAs must maintain separate grievance mechanisms for activities under different regulators.

 

The co-authors are:

Madhurima Mukherjee, Senior Partner, JSA

Madhurima Mukherjee Saha
Partner

Tisa Padhy
Associate

Adnan Danish
Associate

Mahaveer Singh
Company Secretary

 

Reforms to Rights Issues: A Major Highlight in SEBI’s September 2024 Board Meeting

SEBI logo displayed on the exterior wall of a modern glass office building, partially framed by palm leaves.

In its September 30th, 2024, board meeting, SEBI introduced a major reform by reducing the timeline for rights issues from the existing average of 317 days to 23 days. This change is expected to significantly expedite the capital-raising process for companies, making it faster and more efficient for both issuers and investors.

Rights issues, where existing shareholders are given the right to buy additional shares at a discount, have long been seen as a favourable means of raising funds. However, the existing average timeline is comparatively lengthy, which may be a potential deterrent for companies, as they could be exposed to market volatility and investor uncertainty. The reduction brings various positives and highlights growing reforms in the market.

The Importance of the Reform

This reduction in the rights issue timeline is especially pertinent in today’s fast-growing markets, where the need for liquidity and quick access to capital is critical. Shorter timelines reduce the window for market fluctuations, thereby reducing chances of negative impact on share prices or investor sentiment. Companies, especially those needing immediate funds due to market opportunities or financial constraints, can now complete the fundraising process within a much shorter timeframe, allowing them to respond to market conditions more dynamically, and allow existing shareholders to participate in he continued growth of the issuer.

From an operational perspective, this shift also reduces the administrative burden associated with prolonged fundraising periods. Companies can now streamline their capital-raising process without the risk of their share prices being negatively affected by extended periods.

Implications for Issuers

For companies, the shortened timeline offers a great opportunity to raise funds more quickly, which can be crucial in times of economic instability or rapid market changes. Many companies may find this reform especially beneficial when looking for fast-tracked funding for business expansions, acquisitions, or debt reduction. The reduced timeline also mitigates the risk that prolonged processes might lead to a dilution of stock value or decreased investor confidence.

Moreover, this new framework could make rights issues a more attractive option compared to alternative fundraising methods, such as public offerings or taking on additional debt. Public offerings often involve extensive regulatory compliance, and borrowing can weigh down a company with additional liabilities. In contrast, rights issues, especially under the new timeline, offer a quicker and less cumbersome method of securing capital while keeping shareholder control largely intact.

Benefits for Investors

From an investor’s perspective, the quicker rights issue process reduces the uncertainty involved. Under the existing timeline, investors were often left waiting for extended periods, during which market dynamics could shift unfavourably. Now, with the shortened timeline, investors can make quicker decisions regarding their participation, reducing the risks associated with prolonged market exposure.

The new framework also allows investors to respond more efficiently to a company’s capital-raising needs, encouraging more active participation. Investors may be more likely to take up rights issues now, knowing that the process is quicker.

Boosting Confidence in the Capital Markets

This change is not just about improving efficiency; it’s also about restoring and boosting confidence in the Indian capital markets. Rights issues are a key indicator of market health, and a faster, more streamlined process indicates a more robust, dynamic market environment.

By reducing the timeline, SEBI is also aligning India’s rights issue processes more closely with global standards, making the Indian capital markets more attractive to both domestic and international investors.

Conclusion

SEBI’s decision to reduce the timeline for rights issues is a transformative step towards creating a more efficient and responsive capital-raising environment in India. For issuers, it provides a faster way to secure necessary funds, and for investors, it reduces the uncertainty tied to prolonged processes. This reform reinforces the use of rights issues as a preferred method for raising capital and could serve as a cornerstone for further regulatory developments aimed at modernising India’s capital markets and aligning it to more mature global standards.

SEBI Board Meeting Outcome

SEBI logo displayed on the exterior wall of a modern glass office building, partially framed by palm leaves.

The SEBI board at its meeting held on March 29, 2023 has approved the following key amendments and changes to the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended (“LODR”) and the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended (“ICDR”).

Disclosure of material events

1. Introduction of quantitative materiality threshold for determination of materiality of events or information.

Regulation 4 of the LODR, casts the following obligations are on a listed entity:

  • The listed entity shall provide adequate and timely information to recognised stock exchange(s) and investors
  • The listed entity shall ensure that disseminations made under provisions of these regulations and circulars made thereunder, are adequate, accurate, explicit, timely and presented in a simple language.
  • Channels for disseminating information shall provide for equal, timely and cost efficient access to relevant information by investors.

Regulation 30(4) of the LODR requires disclosure of material information based on certain qualitative criteria, namely:

  • the omission of an event or information, which is likely to result in discontinuity or alteration of event or information already available publicly; or
  • the omission of an event or information is likely to result in significant market reaction if the said omission came to light at a later date;
  • In case where the criteria specified in sub-clauses (a) and (b) are not applicable, an event/information may be treated as being material if in the opinion of the board of directors of listed entity, the event / information is considered material.

Listed entities are also required to devise a materiality policy based on the above principles for disclosure of information. Generally, listed entities include a further quantitative criteria for disclosure of certain material events such as litigation. This may be in the form of any event which has a monetary or determinable impact, such as 10% of the profit after tax or 1% of the revenue of the listed entity. Basis the above amendment, similar monetary or quantifiable thresholds are likely to become applicable for all kinds of disclosures.

2. Timelines for disclosure of material events or information for decisions of the board of directors or emanating from within the listed entity

Presently, Regulation 30(6) of the LODR allows for disclosure of material events within a period of 24 hours from the event, with exceptions for certain decisions of the board, such as approval of dividends, buybacks, increases in capital or approval of financial results, which have to be intimated within 30 minutes of the conclusion of the meeting. The amendments approved would likely make the 30 minute timeline applicable for a wider range of board decisions, if not all, while the overall time period for disclosure of material information has been reduced from 24 hours to 12 hours.

3. Verification, confirmation or clarification of market rumours

With effect from October 1, 2023, the top 100 listed companies by market capitalisation will be required to verify, confirm or clarify on market rumours. This clarification or confirmation regime will be extended to the top 250 listed companies by market capitalisation on April 1, 2024. Based on the press-conference by the SEBI chairperson, we understand that this will be limited to mainstream media. One of the key points of interest will remain the definition of mainstream media, as the universe of information has increased exponentially in recent times with the advent of the digital news medium and social networking sites.

4. Disclosure of certain types of agreements binding listed entities

As per a recently released discussion paper, a new clause 5A is proposed to be incorporated in para A of Part A of Schedule III to the LODR to cover disclosure of any agreement that impacts the management or control of a listed entity or imposes any restriction or creates any liability on a listed entity. Further, agreements whose purpose and effect is to impact the management or control or impose any restriction or create any liability also needs to be disclosed. However, agreements entered by a listed entity for the business operations of a company (e.g. supply agreements, purchase agreements etc.) is proposed to be excluded from the scope of disclosures.

Further, the discussion paper had also proposed a takeover regulations type event based disclosure, making it obligatory on shareholders, promoters, promoter group members, directors, key managerial personnel or related parties to inform the listed entity of entering into such agreements.

Once enacted, the disclosure paper also envisaged disclosure of such agreements by June 30, 2023 and ratification by the board and shareholders of the listed entity at subsequent general meeting during Fiscal 2024.

Corporate governance norms

5. Periodic shareholder approval of special rights

With a view towards further strengthen  corporate governance norms at listed entities, SEBI has approved amendments to include a periodic approval of any special rights granted to certain shareholders. As per a recently issued discussion paper, the proposal was to seek shareholder approval for special rights, such as director nomination, at an interval of five years. The discussion paper had also proposed that the existing special rights available to shareholders be renewed within a period of five years from the date of notification of the amendments to the LODR. Depending upon the amendment regulations, it may also open flood gates for shareholders who were contemplating to avail special rights in a listed company. Moreover, as the SEBI board meeting mentions ‘any special right granted to a shareholder of a listed company’, it may lead to queries from private equity investors for retaining certain special rights (other than appointment of nominees) to be continued post the IPO of a company, on the grounds of the same being permitted in case of any listed company (subject to periodic shareholder approval).

6. Alignment of disclosure requirements for BTAs and schemes of arrangement

In terms of a recent discussion paper, SEBI had proposed to institute an additional mechanism for shareholder verification and approval of the process of disposal of undertakings or entities outside the scheme of arrangement process. Currently, the scheme of arrangement requires approval of the shareholders and stock exchanges, with certain exceptions and the amendment proposed would align the need to seek approval between business transfer agreements or slump sale arrangements with those applicable to schemes of arrangement.

The proposals included disclosure of objects and commercial rationale for such sale, disposal and/or lease to the shareholders with voting approval to be obtained from the majority of the minority shareholders. It should be noted that this approval would be in addition to approvals required from shareholders for disposal of assets under the Companies Act, 2013.

7. Periodic approval of directorship term

In the interest of good corporate governance at listed entities, all directors appointed to the board of a listed entity will need to go through periodic shareholders’ approval process, thereby providing legitimacy to the director to continue to serve on the board. In terms of the recent discussion paper, this would be on the similar lines being followed for the appointment / re-appointment of whole time directors and independent directors. The proposal set out in the discussion paper was to have such periodic shareholders’ approval at least once in every five years from the date of his / her first appointment to the board. For existing directors, who have not been subject to reappointment since April 1, 2019, the re-appointment would require to be obtained during Fiscal 2024.

8. Disclosure of financial statements by newly listed entities

Read with a recently issued discussion paper, the proposed amendment would require a newly-equity listed entity to disclose its first financial results post its listing, for the period immediately succeeding to the periods for which financial statements were disclosed in its offer document for initial public offer, within 15 days from the date of listing or as per the applicable timeline under LODR Regulations, whichever is later. The below illustration from the discussion paper dated February 20, 2023 helps explain the requirements:

For example, in case of listing on March 01, 2023, as per the requirement under ICDR Regulations, the issuer would have disclosed in its offer documents the financial results till the period ended September 30, 2022. Hence, post its listing, it would be required to disclose the financial results for the succeeding period, i.e., quarter ended December 31, 2022, within 15 days from the date of listing, i.e. by March 16, 2023.The annual financial results for the financial year ended March 31, 2023 would be required to be disclosed as per the timeline specified in the LODR Regulations, i.e., by May 30, 2023.

Having said that, SEBI in its board meeting has communicated that a streamlined approach will have to be followed by newly listed companies towards releasing their first set of financial results immediately post listing, primarily to bridge the gap between the financials as disclosed in the prospectus and subsequently post listing.

9. Timeline for filling up vacancies

Listed entities will be required to fill up the vacancy of the offices of directors, compliance officer, chief executive officer and chief financial officer within a period of three months from the date of such vacancy, to ensure that such critical positions are not kept vacant indefinitely.

Amendments to ICDR

10. Underwriting

In furtherance of the SEBI consultation of February 2023 on ICDR, , SEBI has approved amendments to the ICDR to legislate the difference between underwriting for shortfall in demand and underwriting for technical rejections or payment risk. In either case, if adopted, will require to be agreed upon by the issuer and the underwriters prior to the filing of the red herring prospectus and disclosed to the prospective investors. This development mandates issuers, selling shareholders (if any) and lead managers to evaluate the need to underwrite an IPO only at the red herring prospectus stage, after factoring all aspects during that phase until allotment of shares for any know or unknown event expected to hinder the IPO (whether directly or indirectly).

Suitable amendments to Regulation 40 of the ICDR, as suggested by the discussion paper are awaited.

11. Bonus issues

SEBI also approved two amendments in relation to bonus issues of shares by listed entities. First, as long as there is a mismatch between the issued and listed capital of a company, it shall not be entitled to undertake a bonus issue given that a bonus issuance announcement is price sensitive. Accordingly, SEBI has mandated to resolve such discrepancies in the share capital via seeking in-principal approvals by the issuer from the stock exchanges for all its pre-bonus shares. This is a positive move to iron out hindrances faced by bourses in granting in-principal approvals during the aforesaid situation as it only widens the existing gap.

Second, bonus issuances must henceforth be done compulsorily in dematerialised form. This is in line with the recent regulatory move of compulsory dematerialisation of securities and allotment and transfer of securities in dematerialised form including for issuers enroute an initial public offering. While this step is surely progressive, practically, this may impact certain issuers with legacy physical shareholders who remain untraceable. Probably, the registrars and stock exchanges may have to huddle up, to draw a road map to park such unclaimed bonus shares akin to the framework in case of rights issues, wherein such shares are kept in suspense account.

It is critical to note that the SEBI press release specifically mentions that the amendments to ICDR are ‘with the objective of increasing transparency and streamlining certain issue process’ and consequently, the above two developments are only some of the amendments approved by SEBI in its board meeting and one will have to wait for the fine print of the ICDR amendment regulations to get hold of the other amendments to ICDR.

This blog is authored by Capital Markets team.

SEBI notifies confidential DRHP filing norms

SEBI logo displayed on the exterior wall of a modern glass office building, partially framed by palm leaves.

The Fourth Amendment introduces the construct of:

  • Confidential filing of draft offer documents for Indian issuers looking to undertake an initial public offering (“IPO”);
  • Monitoring of issue proceeds for preferential issues and qualified institutions placements (“QIP”), amongst others.

 

Highlights of the Process of Confidential Filing:

  1. The issuer prepares and files a draft red herring prospectus with SEBI and the stock exchanges (“Confidential DRHP”), however, this Confidential DRHP will not be available for public review or comments.
  2. The issuer needs to issue a public advertisement that it has filed the Confidential DRHP with SEBI, but not mentioning any other details of the public issue, neither guaranteeing that it will complete the IPO nor inviting comments from the public.
  3. SEBI reviews the Confidential DRHP and provides comments on the Confidential DRHP. Usually this involves a few rounds of comments from the regulator on the Confidential DRHP, which process one can reasonably expect to continue.
  4. Stock exchanges may also provide comments on the Confidential DRHP.
  5. After incorporating the comments received from SEBI and the stock exchanges, the issuer will be required to file an updated Confidential DRHP (“UDRHP-I”) reflecting the changes made to the Confidential DRHP pursuant to regulatory comments and other factual changes.
  6. At this stage, the issuer will also have to issue a second advertisement, informing the public of the filing of this UDRHP-I and inviting comments on the same. The period for inviting comments shall be 21 days. The key difference from the public filing process is that the draft document made available for public comments, has already undergone regulatory scrutiny and therefore more likely to be a more complete document from a disclosure perspective.
  7. Between stages 2 and 3, the issuer can approach a selected list of qualified institutional buyers (“QIB”), for marketing the IPO. This is a formalisation of the current public filing process, wherein issuers do conduct marketing post the filing of a draft red herring prospectus.
  8. Taking cue from the listing regulations, while the issuer is supposed to maintain a record of the investors it meets for marketing, presently there is no need to file this data with the regulators. Information shared with these QIBs will need to be limited to the Confidential DRHP. Parties may have to consider entering into non-disclosure agreements with these QIBs to ensure that the content of the Confidential DRHP remains within select set of participants and is not disseminated.
    Comment: It is interesting to note that while SEBI has asked for a minimum time gap of 7 working days between the closure of these investor meetings and filing of the UDRHP-I. These meetings can be conducted only until any observations are issued by SEBI on the Confidential DRHP.
  9. Fourth, after incorporating comments received from the public, the issuer will be required to file a further updated version of UDRHP-I, which is termed as UDRHP-II, to show changes pursuant to public comments and any factual changes.
  10. This UDRHP-II, with the IPO launch dates and other finalised details of intermediaries such as bankers to the offer, will be the red herring prospectus (“RHP”).
  11. Once finalised, the RHP will be filed with the registrar of companies (“ROC”).
    Comment: The process of opening and closing of the IPO remains the same as per the SEBI ICDR Regulations.

 

Other Key Considerations

Eligibility for OFS

  1. The holding period of 1 year for shares to be offered in an IPO is to be calculated from the date of filing of UDRHP-I.
  2. The Confidential DRHP will have to be redone in case there is any change in the size of the offer for sale by more than 50%.
    Comment: Practically, parties may have to decide on the indicative sellers in the IPO at the time of the Confidential DRHP itself, so that there are no substantial alterations, for various reasons, including the outcome of investor meetings.

 

Publicity

  1. Publicity activities for the period prior to UDRHP-I will require to be kept in line with past practices.
  2. Post filing of the UDRHP-I, the existing publicity restrictions and disclaimers will have to be followed.

 

Convertibles

  1. The issuer is entitled to retain outstanding convertible securities and rights available to shareholders to receive equity shares till SEBI issues observations.
  2. The public filing process contemplates that all such convertibles should be converted or be terminated or extinguished before the RHP is filed with the ROC.
  3. The Fourth Amendment has proposed that all such convertible securities and rights should be converted prior to the issuance of SEBI observations on the DRHP.
  4. The exceptions to this conversion requirement are options granted under employee stock option schemes and fully paid-up convertible securities, which are required to be converted on or prior to the RHP filing.
    Comment: While the wording has remained similar to the existing eligibility conditions under Regulation 5(2) of the SEBI ICDR Regulations, in future, SEBI may consider clarifying conversion of convertibles at the RHP filing with ROC stage for the confidential filing process.

 

Timelines

  1. In case of IPOs via the Confidential DRHP, the time period for opening of an IPO has been extended to 18 months from the date of final observations by SEBI, up from 12 months as per the public filing process.
  2. However, an issuer is required to file UDRHP-I by 16 months from the date of the observations.

 

Monitoring use of proceeds: Private placements not so private anymore?

  1. One of the key changes introduced through the Fourth Amendment is the requirement to have monitoring of use of proceeds of preferential allotments and QIPs above Rs. 100 crores.
  2. This requirement to have a credit rating agency monitor the use of funds raised (by other than by a public financial institution, insurance company or a bank) through preferential issues and QIPs aligns monitoring requirements with current IPOs and rights issues.
  3. Oversight of utilisation of money raised through public processes would always lead to greater compliance and is a move in the right direction. Having said that, SEBI may need to examine the existing disclosure regime for objects of QIPs and preferential issues in order to enable the credit rating agency to appropriately confirm the end-use.

 

Submission of offer documents

  1. In a reversal of the previous decentralisation of the IPO offer document review process, SEBI has not directed that offer documents be submitted to the head office.
    Comment: This has implications:
    a) a standardised approach to review of offer documents;
    b) while potential bottlenecking and increased review times due to increased number of offer documents, remains a potential area of concern.

Simplifying disclosures

As a follow up to ongoing directions issued by SEBI through observations and through the Association of Investment Bankers of India, certain amendments have been carried out to disclosure requirements in IPO offer documents under Part A of Schedule VI. The key changes can be summarised as follows:

 

Key Performance Indicators

  1. In order to simplify the use of performance indicators by issuers to showcase their growth and potential, SEBI has directed that all such ‘Key Performance Indicators’ or ‘KPIs’ will now need to be provided to all investors and defined in simple terms.
  2. If defined using technical terms, such technical terms must in turn be defined. KPIs must be certified by auditors/peer reviewed independent chartered accountant or cost accountant and such certificate will become a material document for inspection.
  3. The KPIs in turn must be approved by the audit committee of the issuer and explanation must be provided as to how the disclosed KPIs have been used historically by the management to track or monitor the operational or financial performance of the issuer.
  4. Importantly, KPIs disclosed to investors prior to the IPO must be disclosed in the offer document and those disclosed in the IPO offer document will require to continue to be disclosed post listing, for a one year period or till the IPO proceeds are utilised, whichever is later.

 

IPO price justification

Another amendment which is in line with recent SEBI directives, is the requirement to set out the justification of the IPO price.

  1. Issuers will now have to provide details of the price at which significant number of shares (exceeding 5% of the fully diluted pre-transaction share capital) have been issued in the last 18 months (whether in a single tranche or on a rolling basis over a 30 day period).
  2. Similarly prices at which significant number of shares (exceeding 5% of the fully diluted pre-transaction share capital) have been acquired by promoters, selling shareholders, members of the promoter group or shareholders with the right to nominate directors to the board have been transacted in the last 18 months (whether in a single tranche or on a rolling basis over a 30 day period) have to be disclosed.
  3. Moreover, SEBI has also now formalized the requirement of the price band advertisement specifically including a mention of the recommendation from a committee of independent directors of the issuer re the price band being justified based on quantitative factors / KPIs disclosed in ‘Basis for Issue Price‘ section vis-à-vis the weighted average cost of acquisition of primary issuance / secondary transaction(s) disclosed in ‘Basis for Issue Price‘ section.

 

This blog is authored by Capital Markets team.

 

Disclaimer for Updates / Client Alerts 

This update is not an advertisement or any form of solicitation and should not be construed as such. This update has been prepared for general information purposes only. Nothing in this update constitutes professional advice or a legal opinion. You should obtain appropriate professional advice before making any business, legal or other decisions. JSA and the authors of this update disclaim all and any liability to any person who takes any decision based on this publication.

Recent Key Reforms Enforced by SEBI

Pursuant to a board meeting of the Securities and Exchange Board of India (“SEBI”) held on September 30, 2022 (“Press Release”), a series of reforms and amendments were enforced by SEBI.

A summary of the key reforms and amendments are as follows:

  1. Introduction of pre-filing of offer document as an optional alternative mechanism for the purpose of initial public offer on the main board of stock exchanges

SEBI has approved the proposal of a pre-filing mechanism of offer documents as an alternative to the existing mechanism of filing offer documents, in relation to initial public offers on the main board of the stock exchanges.

SEBI pursuant to its “Consultation Paper on Pre-filing of Offer Document in case of Initial Public Offerings” (“Consultation Paper”), discussed the concerns of the issuer companies proposing to raise funds by an initial public offer (“IPO”), including disclosure of sensitive information in the draft red herring prospectus, which may be beneficial to competitors of such issuer companies, without the certainty that the IPO would be executed.

In terms of the Consultation Paper, issuer companies will have the option under the pre-filing mechanism to file the draft red herring prospectus with SEBI and stock exchanges, without making it available for public, for an initial scrutiny period only (“Confidential Filing”). SEBI will provide its observations on the Confidential Filing. In the event the issuer company proposes to undertake the IPO, an updated draft red herring prospectus after incorporating the comments received from SEBI on the Confidential Filing (“UDRHP I”) will be filed with the SEBI and stock exchanges and will also be made available for public comments for at least 21 days.

The issuer company will be required to file a further updated documents with the SEBI and stock exchanges incorporating (a) comments received from the public; and (b) any regulatory or factual updates in UDRHP I, as applicable (such document, “UDRHP 2”). Pursuant to SEBI taking note of changes in the UDRHP-II, the issuer company may file the Red Herring Prospectus (“
RHP”) with Registrar of Companies (“RoC”), stock exchange(s) and SEBI.

While SEBI pursuant to its Press Release has approved the proposal of pre-filing of offer document, the finalised framework for pre-filing mechanism of offer documents is yet to be notified by SEBI, based on comments received on the Consultation Paper. Further, while the consultation paper clearly specified that marketing of the IPO can only be undertaken post UDRHP-1 filing, a clarification on the same is pending from SEBI.

  1. Monitoring of utilization of issue proceeds raised through preferential issue and qualified institutions placement (QIP) issue, in terms of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“SEBI ICDR Regulations”)

SEBI has approved the proposal to introduce monitoring of utilization of issue proceeds raised through preferential issues and qualified institutions placement (QIP), with credit rating agencies as monitoring agencies, for issues of size above Rs. 100 crores. This will enable shareholders to stay abreast of and keep a track on the status of the utilization of funds raised by the company as against the disclosed objective of utilization of funds. Further, since monitoring of the utilization of proceeds is required for all pubic and rights issue with an issue size of above Rs 100 crores, this reform has now aligned the requirement of monitoring of utilization of proceeds with that of the public and rights issues, which we feel is a positive step towards attaining overall investor protection.

  1. Disclosure of key performance indicators (“KPIs”) and price per share of the issuer, in public issues, based on past transactions and past fund raising from the investors

Issuers proposing to raise funds by IPOs will now have to disclose the (i) KPIs, and (ii) price per share of the issuer company, based on past transactions and past fund raising done by it from investors prior to IPO (“Pre-IPO Fund Raising”), under the ‘Basis for Issue Price’ section of the offer document, as well as in the price band advertisement to be issued by the issuer company in terms of the SEBI ICDR Regulations.

In relation to the Pre-IPO Fund Raising, SEBI has specified that the price per share of the issuer company based on primary or new issue of shares and based on secondary sale / acquisition of shares, during the 18 months period prior to the IPO will have to be disclosed and in case there are no such transactions during the 18 months period prior to IPO, then information for price per share of the issuer company would have to disclosed based on last five primary or secondary transactions done within three years of the IPO. Further, the weighted average cost of acquisition (“WACA”) based on primary/ secondary transaction(s) and ratio of WACA vis-à-vis IPO floor price and cap price will have to be disclosed in the offer documents and in the price band advertisement.

A committee of the independent directors of the issuer company will also have to provide a justification on the price band based on quantitative factors/ KPIs vis-à-vis the WACA of primary issuance and secondary transaction(s).

While this amendment is a step in the right direction, there are certain points which may need clarity from SEBI. For instance, in relation to disclosure of price per share of the issuer company, SEBI in its consultation paper dated February 18, 2022, clearly specified that Pre-IPO Fund Raising of both equity shares and convertible shares would have to be considered for calculating the price per share of the issuer company. However, basis the Press Release, we are unable to ascertain whether the issuance of both convertible securities and equity shares would have to be considered for the calculation of the aforesaid parameter.

  1. Amendments to the Listing Regulations in re appointment and removal of independent directors

In terms of Regulation 25 (2A) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“Listing Regulations”), the appointment, re-appointment or removal of an independent director of a listed entity, shall be subject to the approval of shareholders by way of a special resolution. Further, in accordance with the Section 149 (10) of the Companies Act, 2013, no independent director shall hold office for more than two consecutive terms.

SEBI by way of its Press Release has provided flexibility in the approval process for appointment and / or removal of independent directors by approving an alternate method for the appointment and removal of independent directors appointed for the first term

If the special resolution for appointment of an independent director is unable to attain the requisite majority, under alternative method, such independent director will be deemed to be duly appointed if following thresholds are met:

  • Threshold for an ordinary resolution in terms of the Companies Act, 2013;
  • Threshold for majority of minority shareholders.

 

The aforesaid thresholds would similarly be applicable for the removal of an independent director appointed under this alternate mechanism.

Further, while SEBI in its “Consultation Paper on Review of Regulatory Provisions related to Independent Directors” dated March 1, 2021, has defined “minority shareholders” as shareholders, other than the promoter and promoter group, we await clarification on the exact scope and meaning of “minority shareholders”.

This blog is authored by Capital Markets team.

 

Disclaimer for Updates / Client Alerts 

This update is not an advertisement or any form of solicitation and should not be construed as such. This update has been prepared for general information purposes only. Nothing in this update constitutes professional advice or a legal opinion. You should obtain appropriate professional advice before making any business, legal or other decisions. JSA and the authors of this update disclaim all and any liability to any person who takes any decision based on this publication.

SEBI advisory on exemptions relating to Promoter Group

Securities and Exchange Board of India (“SEBI”) has issued an advisory dated April 26, 2022, to the Association of Investment Bankers of India mandating changes and clarifying processes in for exemptions with respect to classification and inclusion of details of members of promoter group of a company en route an initial public offering (“Advisory”).

Regulation 2 (1) (pp) (ii) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended (“SEBI ICDR Regulations”) includes an immediate relative of a promoter or its spouse in the definition of the promoter group. As per the Advisory, any exemption sought with respect to inclusion of such members in promoter group of the issuer shall have to be necessarily accompanied with either (a) a reference or affidavit from the relative stating in clear terms that the person does not want to be part of the promoter group or (b) a memorandum of understanding (“MoU”) duly signed between the promoter and the said relative. Accordingly, formal communication between the issuer or promoter and the concerned relative of the promoter will require to be placed before SEBI along with the exemption application. The communication may be supported by an affidavit issued by the relative declaring their intention to not be named as part of the promoter group. Alternatively, a formal family settlement agreement or MoU setting out estrangement will be required to be presented.

Further, an immediate relative in relation to whom an exemption is being sought, should not be holding any interest in the issuer including through equity or debt, or as a vendor, supplier, client or otherwise. Therefore the issuer or promoter will require to demonstrate complete separation of business interests of the immediate relative from the issuer. However, no clarification has been provided in respect of time frame or period within which such transactions or interests may have been held.

The Advisory also clarifies that any such exemption shall have to be obtained prior to filing of the draft red herring prospectus with SEBI.

Prior to this Advisory, issuers used to send applications to the relatives of the promoters and their spouses for obtaining their consent for inclusion of their name(s) in the offer documents, in the absence of obtention of which, it would seek an exemption from SEBI for removal of the name of such relative(s) from the promoter group and non-disclosure of confirmation required from promoter group in respect of such relative(s). The exemption applications were previously filed immediately prior to or co-terminus with the filing of the draft offer document with SEBI. Therefore, the Advisory has escalated concerns that this requirement to obtain positive confirmations or affidavits or additional documentation demonstrating estrangement, may potentially be a serious hurdle to IPO-bound companies.

While SEBI’s intention appears to be prevention of the abuse of exemption process to conceal disclosure of some promoter group members, the proposed solution may give rise to regulatory impediment in genuine cases where a member of the promoter group may mala fide withhold signing of necessary documents.

This blog is authored by the JSA Capital Markets Team.

SEBI’s views of accessibility and legibility

A summary of the Accessibility Guidelines are as follows:

Quick Response Code (“QR Code”)

For all draft red herring prospectuses (“DRHPs”) filed on or after April 1, 2022, the cover page of the DRHP, red herring prospectus or prospectus(“offer document”) should contain a QR Code which links to a separate page on the website of the lead merchant banker (colloquially known as the left lead), where the offer documents, abridged prospectus, any corrigenda or addenda, and price band advertisement is available.

The QR Code should lead through not more than one click through filter (for jurisdiction specific restrictions or disclaimers) to the offering material.

Non-left lead merchant bankers may continue to upload the document based on current practices.

 

Content of offer documents

Cover Page: To ensure legibility, the Accessibility Guidelines sets out that the cover page of offer documents (containing the QR Code), should be at least font size 10 with utilisation of margins to ensure space for the increased font size.

Financials: Financial statements should be included in a manner such that legibility is ensured, including through use of landscape formats and narrower page margins.

Capital Structure: Details of allottees should be included in the table itself to the extent possible, especially for allotments to promoters, members of the promoter group or institutional shareholders. Only disclosures on allotments to employees or a large number of allottees should be provided in paragraph form through footnotes.

Risk Factors: Language in risk factors should be simplified to avoid repetition within and across risk factors. Percentages, wherever are mentioned, should be accompanied with corresponding numerical amounts. Data, as much as possible, should be presented in a tabular format for better understanding and legibility.

 

SEBI Observation responses and UDRHP

SEBI Responses: SEBI response should be properly formatted and with font size of at least 10. Responses provided to SEBI observations should clearly indicate whether the information is proposed to be disclosed in the offer document or is for SEBI’s review only. If data is not proposed to be disclosed, the rationale for the same should be clearly mentioned.

UDRHP: Changes to offer document as a result of SEBI observations should be highlighted in a different colour, in the comparison submitted to SEBI, for easier review.

 

Main board listing

All advertisements relating to an issue, should clearly disclose that the securities will be listed on the main board or on SME platforms. Similar disclosures to be made in case of advertisements for rights issues.

 

This blog is written by Pracheta Bhattacharya and Harish Choudhary.

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