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Securities Law Amendments June 2022 (CS Executive)

LESSON 1 Securities Contracts (Regulation) Act, 1956


1. Minimum Public Shareholding • The Central Government has been empowered to exempt any listed public sector company from any or all of the provisions of Rule 19A sub-rules (1) to (5) of Securities Contracts (Regulation) Rules, 1957. (Minimum Public Shareholding)

• In Rule 19 relating to Requirements with respect to the listing of securities on a recognised stock exchange, after the words ―four thousand crore rupees, the words ―but less than or equal to one lakh crore rupees shall be inserted and another limit of post issue capital above one lakh crore has to be inserted, where public needs to hold at least five per cent of equity shares or debenture convertible into equity shares issued by the company.

• Further, it is provided that where the public shareholding in a listed company falls below 10%, as a result of implementation of the resolution plan approved under section 31 of the Insolvency and Bankruptcy Code, 2016, the same shall be increased to at least ten per cent, within a maximum period of twelve months from the date of such fall, in the manner specified by the SEBI. Further provided that, every listed company shall maintain public shareholding of at least five per cent as a result of implementation of the resolution plan approved under section 31 of the Insolvency and Bankruptcy Code, 2016.


Lesson No. 4: An overview of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018


1. Minimum Promoters Contribution

Lock-in of specified securities held by the promoters: The words “three years from the date of commencement of commercial production or date of allotment in the initial public offer, whichever is later”, shall be substituted with the words “eighteen months from the date of allotment”.

Promoters’ holding in excess of minimum promoters’ contribution shall be locked-in for a period of 6 months from the date of allotment in the IPO instead of existing 1 year.

• The entire pre-issue capital held by persons other than the promoters shall be locked-in for a period of 6 months from the date of allotment in the IPO instead of 1 year.


Lesson 5 - SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

1. The listed entity shall ensure that approval of shareholders for appointment of a person on the Board of Directors is taken at the next general meeting or within a time period of three months from the date of appointment, whichever is earlier. [Reg. 17(1C)]- New Insertion

2. At least 2/3rd of the members of the audit committee shall be independent directors and all related party transactions shall be approved by only independent directors on the Audit Committee. [Reg. 18(1)(b)]

3. The composition of Nomination and remuneration committee has been modified to include at least 50% independent directors instead of existing requirement of 2/3rd of independent directors. [Reg. 19(1)(c)]

4. 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. [Reg. 25(2A)]- New Insertion

5. The requirement of undertaking Directors and Officers insurance has been extended to the top 1000 companies with effect from January 01, 2022. [Reg. 25(10)]

6. No independent director, who resigns from a listed entity, shall be appointed as an executive / whole time director on the board of the listed entity, its holding, subsidiary or associate company or on the board of a company belonging to its promoter group, unless a period of one year has elapsed from the date of resignation as an independent director. [Reg. 25(11)]- New Insertion.

7. The regulation 15 and regulation 16 to regulation 27 of SEBI (LODR) Regulations, 2015, w.r.t. the corporate governance provisions shall apply to a listed entity which has listed its nonconvertible debt securities and has an outstanding value of listed non-convertible debt securities of Rs. 500 crore and above. However, in case an entity that has listed its non- convertible debt securities triggers the specified threshold of Rs. 500 crore during the course of the year, it shall ensure compliance with these provisions within six months from the date of such trigger.

8. Intimation to stock exchange(s) [Regulation 50]. (1) The listed entity shall give prior intimation to the stock exchange of at least two working days in advance, excluding the date of the intimation and the date of the meeting of the board of directors, about the Board meeting in which any of the following proposals is to be considered: (a) an alteration in the form or nature of non-convertible securities that are listed on the stock exchange or in the rights or privileges of the holders thereof; (b) an alteration in the date of the interest/ dividend/ redemption payment of non-convertible securities; (c) financial results viz. quarterly or annual, as the case may be; (d) fund raising by way of issuance of non-convertible securities; or (e) any matter affecting the rights or interests of holders of non-convertible securities.

9. Related Party Transactions:  In the existing provisions, it was provided that, a transaction with a related party shall be considered material if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceeds 10% of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity. Vide this amendment, it is provided that, a transaction with a related party shall be considered material, if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceeds Rs. 1000 crore or 10% of the

annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity, whichever is lower.”  It is clarified that even the subsequent material modifications in a related party transaction shall require prior approval of the audit committee of the listed entity.  It is clarified that prior approval of shareholders shall be required for material related party transactions.


Lesson - 11 SEBI (PROHIBITION OF INSIDER TRADING) REGULATIONS, 2015

1. Informant reward The amendments has been made in regulation 7D which provides that SEBI may at its sole discretion, declare an Informant eligible for Reward provided that the amount of Reward shall be ten percent of the monetary sanctions and shall not exceed Rupees 10 crores (earlier Rs. 1 crores) or such higher amount as SEBI may specify from time to time.

Further, a new sub-regulation 7D (1A) has been inserted which provides that if the total reward payable is less than or equal to Rupees One Crore, SEBI may grant the said reward upon the issuance of the final order by SEBI.

Provided that in case the total reward payable is more than Rupees One Crore, SEBI may grant an interim reward not exceeding Rupees One Crore upon the issuance of the final order by SEBI and the remaining reward amount shall be paid only upon collection or recovery of the monetary sanctions amounting to at least twice the balance reward amount payable


Lesson 12: MUTUAL FUNDS

1. Enhancement of Overseas Investment limits for Mutual Funds

SEBI has enhanced the overseas investment limits for mutual to a maximum of US $ 1 billion per Mutual Fund, within the overall industry limit of US $ 7 billion. Further, Mutual Funds can make investments in overseas Exchange Traded Fund (ETF(s)) subject to a maximum of US $ 300 million per Mutual Fund, within the overall industry limit of US $ 1 billion. The new investment limit would come into force with immediate effect.

2. Norms for Silver Exchange Traded Funds (Silver ETFs) and Gold Exchange Traded Funds (Gold ETFs) With respect to Silver ETFs/Gold ETFs, the following operating norms have been specified:

• Investments: SEBI mandated that a Silver ETF Scheme shall invest at least 95% of the net assets of the scheme in Silver and Silver related instruments. • Disclosure of NAV: The NAV shall be disclosed on daily basis on the website of the AMC. Further, the indicative NAVs of Silver ETFs shall be disclosed on Stock Exchange platforms, where the units of these ETFs are listed, on continuous basis during the trading hours.

• Disclosures: To enable the investors to take an informed decision, the SID shall, inter-alia, disclose the following:

1. Tracking error and tracking difference,

2. Market risk due to volatility in silver prices, 3. Liquidity risks in physical or derivative markets impairing the ability of the fund to buy and sell silver, 4. Risks associated with handling, storing and safekeeping of physical silver; 5. Applicable tax provisions.

• Dedicated Fund Manager: For commodity based funds such as Gold ETFs, Silver ETFs and other funds participating in commodities market, a dedicated fund manager with relevant skill and experience in commodities market including commodity derivatives market shall be appointed to manage the fund. However, it is clarified that dedicated fund manager(s) for each Commodity based fund is not mandatory.

• Half Yearly Trustee Report: Physical verification of silver underlying the Silver ETF units shall be carried out by the statutory auditor of mutual fund and shall report the same to trustees on half yearly basis. The confirmation on physical verification of silver as stated above shall also form part of half yearly report by trustees to SEBI.


Lesson 15 - Structure of Capital Market

1. The amendment introduced concepts of, “accreditation agency”, “accredited investor” and “large value fund for accredited investors” 1) “accreditation agency” means a subsidiary of a recognized stock exchange or a subsidiary of a depository or any other entity as may be specified by the Board from time to time.

2) “accredited investor” means any person who is granted a certificate of accreditation by an accreditation agency who,

(i) in case of an individual, Hindu Undivided Family, family trust or sole proprietorship has: (A) annual income of at least two crore rupees; or (B) net worth of at least seven crore fifty lakh rupees, out of which not less than three crores seventy-five lakh rupees is in the form of financial assets; or (C) annual income of at least one crore rupees and minimum net worth of five crore rupees, out of which not less than two crore fifty lakh rupees is in the form of financial assets. (ii) in case of a body corporate, has net worth of at least fifty crore rupees; (iii) in case of a trust other than family trust, has net worth of at least fifty crore rupees; (iv) in case of a partnership firm set up under the Indian Partnership Act, 1932, each partner independently meets the eligibility criteria for accreditation: Provided that the Central Government and the State Governments, developmental agencies set up under the aegis of the Central Government or the State Governments, funds set up by the Central Government or the State Governments, qualified institutional buyers as defined under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, Category I foreign portfolio investors, sovereign wealth funds and multilateral agencies and any other entity as may be specified by the Board from time to time, shall deemed to be an accredited investor and may not be required to obtain a certificate of accreditation;”

3) “large value fund for accredited investors” means an Alternative Investment Fund or scheme of an Alternative Investment Fund in which each investor (other than the Manager, Sponsor, employees or directors of the Alternative Investment Fund or employees or directors of the Manager) is an accredited investor and invests not less than seventy crore rupees;”


Lesson -16 SECURITIES MARKET INTERMEDIARIES

1. Publishing Investor Charter and Disclosure of Complaints by Merchant Bankers on their Websites:

With a view to provide investors an idea about the various activities pertaining to primary market issuances as well as exit options like Takeovers, Buybacks or Delistings, an Investor Charter has been developed in consultation with the Merchant Bankers. This charter is a brief document in an easy to understand language and contains different services to the investors at one single place for ease of reference. All the registered Merchant Bankers are hereby advised to disclose on their website, Investor Charter for each of the following categories, as provided at Annexure-‘A’ to this circular –

1. Initial Public Offer (IPO) and Further Public Offer (FPO) including Offer for Sale (OFS); 2. Rights Issue; 3. Qualified Institutions Placement (QIP); 4. Preferential Issue; 5. SME IPO and FPO including OFS; 6. Buyback of Securities; 7. Delisting of Equity Shares; 8. Substantial Acquisitions of Shares and Takeovers.

Additionally, in order to bring about transparency in the Investor Grievance Redressal Mechanism, it has also been decided that all the registered Merchant Bankers shall disclose on their respective websites, the data on complaints received against them or against issues dealt by them and redressal thereof, on each of the aforesaid categories separately as well as collectively, latest by 7th of succeeding month, as per the format enclosed at Annexure- ‘B’ to this circular.

2. Publishing Investor Charter and Disclosure of Complaints by Registrar and Share Transfer Agents (RTAs) on their Websites

In order to facilitate investor awareness about various activities where an investor has to deal with RTAs for availing Investor Service Requests, SEBI has developed an Investor Charter for RTAs, inter- alia, detailing the services provided to Investors, Rights of Investors, various activities of RTAs with timelines, Dos and Don’ts for Investors and Grievance Redressal Mechanism.

In this regard, all the registered RTAs shall take necessary steps to bring the Investor Charter, as provided at ‘Annexure – A’ to the notice of existing and new shareholders by way of: a. disseminating the Investor Charter on their websites / through e-mail; b. displaying the Investor charter at prominent places in offices etc.

Additionally, in order to bring about transparency in the Investor Grievance Redressal Mechanism, it has been decided that all the registered RTAs shall disclose on their respective websites, the data on complaints received against them or against issues dealt by them and redressal thereof, latest by 7th of succeeding month, as per the format enclosed at ‘Annexure - B’ to this circular.




Credit to Shubham Sukhelcha

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