India: Framework For Operationalizing Gold Exchange – Stock Exchanges Allowed To Apply For Trading In EGR | EGR And BDR Notified As "securities" | Special Situation Funds (SSF) Launched By SEBI For Distressed Assets | Other Changes By SEBI For Debt Listed Companies, IPO, Preferential Issue, And MCA Relaxation

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

Filing of Draft Red Herring Prospectus (DRHP) | Conditions for Objects of the Issue if issuer company has not identified any acquisition or investment target.

Threshold for offer for Sale (OFS) to public in an IPO where DRHP is filed by issuer without track record.

CRAs as monitoring agency and reporting on utilization of issue proceeds

Conditions for Objects of the Issue:

• Where the issuer company sets out an object for future inorganic growth but has not identified any acquisition or investment target in its offer documents, the amount for such objects and amount for general corporate purpose (GCP) shall not exceed 35% of the total amount being raised.
• The amount so earmarked for such objects where the issuer company has not identified acquisition or investment target, as mentioned in objects of the issue in the draft offer document and the offer document, shall not exceed 25% of the amount being raised by the issuer.

Exclusion: Above limits will not apply if the proposed acquisition or strategic investment object has been identified and suitable specific disclosures about such acquisitions or investments are made in the draft offer document and the offer document at the time of filing of offer documents.

Threshold for offer for Sale (OFS):

• Selling shareholders holding more than 20% of pre-issue shareholding of the issuer individually, or with persons acting in concert: Shares offered for sale to not exceed more than 50% of their pre-issue shareholding.
• Selling shareholders holding less than 20% of pre-issue shareholding of the issuer individually, or with persons acting in concert: Shares offered for sale to not exceed more than 10% of pre-issue shareholding of the issuer.

Monitoring agency and reporting on utilization of issue proceeds:

• CRAs registered with SEBI, permitted to act as Monitoring Agency instead of Scheduled Commercial Banks and Public Financial Institutions.
• Monitoring by CRAs will continue till 100% of the issue proceeds are utilized, compared to the earlier limit of 95%.
• Amount raised for GCP also to be brought under monitoring and utilization of same to be disclosed in monitoring agency report.
• Monitoring agency report to be placed before the audit committee of the listed entity for consideration on a quarterly basis instead of annual basis.

Minimum price band in case of book built issues

A minimum price band of at least 105% of the floor price will be applicable for all issues opening on or after notification of amendments to the ICDR Regulations in the official gazette.

Lock-in for Anchor Investors

The existing lock in of 30 days for anchor investors to continue for 50% of the portion allocated to such anchor investor. For the remaining portion, lock in of 90 days from the date of allotment will be applicable for all issues opening on or after April 1, 2022.

Revised allocation methodology for Non- Institutional Investors (NIIs)

• For book built issues opening on or after April 1, 2022, the allocation in the NII category to be revised as follows:

• one third of the portion available to NIIs shall be reserved for applicants with application size of more than INR 2,00,000 and up to INR 10,00,000;
• two third of the portion available to NIIs shall be reserved for applicants with application size of more than INR 10,00,000:

• Allotment of securities in case of NII category will be on 'draw of lots', as is currently applicable for retail individual investors (RIIs) category.

Preferential Issues | Factors for determination of floor prices, including in case of change of control.

Reduced lock-in period for promoters and non-promoters pursuant to a preferential issue.

Promoters permitted to pledge lock-in shares pursuant to preferential issue where it is one of the terms of loan sanctioned by financial institution

Preferential Issue for consideration other than cash permitted for share swaps backed with valuation report

In-principle approval from stock exchange to be applied on the same day as date of dispatch of AGM/EGM Notice

Determination of floor price:

• Factors to be considered for determining the floor price for all preferential issues:

• For frequently traded security: The floor price for preferential issue to be higher of 90/10 trading days' volume weighted average price of the scrip preceding the relevant date or as per any stricter provision in the Articles of Association of the issuer company.
• For infrequently traded security: A valuation report by a registered independent valuer will be required.

• Change in control: In case of change in control/ allotment of more than 5% of post issue fully diluted share capital of the issuer company to an allottee or to allottees acting in concert, an additional requirement for a valuation report from a registered independent valuer will be applicable. The same will be considered for determination of floor price in addition to the methodology discussed above. Further, in case of change in control, a committee of independent directors will be required to provide a reasoned recommendation along with their comments on all aspects of preferential issuance including pricing. The voting pattern of the committee shall also be disclosed to shareholders/public.

Lock-in provision for promoters:

• Lock-in requirement for allotment upto 20% of the post issue paid up capital: 18 months (reduced from the existing 3 years).
• Lock-in requirement for allotment exceeding 20% of the post issue paid up capital: 6 months (reduced from the existing 1 year).

Lock-in provision for non-promoters:

• Lock-in requirement for allotments reduced from existing requirement of 1 year to 6 months.

Pledge of locked-in shares:

Promoters would be permitted to pledge the shares locked-in pursuant to a preferential issue provided if pledge of such specified securities is one of the terms of sanction of the loan granted by certain financial institutions and the said loan is to be sanctioned to the issuer company or its subsidiary(ies) for the purpose of financing one or more of the objects of the preferential issue.

Preferential Issue for consideration other than cash:

Consideration for preferential issue, "other than cash" will be permitted only for share swaps backed by a valuation report from an independent registered valuer.

Timelines for seeking in-principle approval from stock exchanges by issuer company:

Issuer company to necessarily apply for in-principle approval from stock exchanges on the same day as the date of dispatch of notice for AGM/ EGM to shareholders.

SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations)

Prior approval of shareholders required for appointment/ re-appointment of persons failing to get elected as directors

SEBI has approved a proposal to introduce provisions relating to appointment or re-appointment of persons who fail to get elected as directors, including as Whole-time directors or Managing Directors or Managers, at the general meeting of a listed entity. Such appointment/ re-appointment will be done only with the prior approval of the shareholders.

Issue of securities in dematerialized form in compliance with investor requests

With a view to improve ease, convenience and safety of transactions for investor, issuance of securities in dematerialized form has been approved, in the event of a request from investor for issue of duplicate shares, etc.

SEBI (Alternative Investment Funds) Regulations, 2012 (AIF Regulations)

Introduction of "Special Situation Funds" (SSFs) as a sub-category under Category I AIFs | Permitted investments and features of SSF regulatory framework

SSFs have been approved as a sub-category under Category I AIF, which will invest only in 'stressed assets' such as:

• Stressed loans available for acquisition in terms of Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 or as part of a resolution plan approved under Insolvency and Bankruptcy Code, 2016;
• Security receipts issued by Asset Reconstruction Companies;
• Securities of companies in distress;
• Any other asset/security as may be prescribed by SEBI from time to time

Other significant features of the regulatory framework for SSFs include the following. It will need to be seen as to SSF framework will find takers in the AIF industry, considering the already existing ARC market:

• Exemptions from investment concentration norm in a single investee company;
• No restriction on investing their investible funds in unlisted or listed securities of the investee company;
• Minimum investment by an investor to be INR 10 crore and INR 5 crore in case of an accredited investor;
• Minimum corpus of INR 100 crore;
• Initial and continuous due diligence requirements mandated by RBI for Asset Reconstruction Companies' investors shall also be applicable to SSFs while acquiring stressed loans in terms of Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021.

SEBI (Mutual Funds) Regulations, 1996 (Mutual Fund Regulations)

Mutual fund schemes to follow Indian Accounting Standards

Mutual Funds schemes to follow Indian Accounting Standard (IND AS) from Financial Year 2023-24 onwards.

Consent of unitholders required by simple majority in case of winding up a scheme or prematurely redeeming the units of a close ended scheme

• Consent of unitholders required: In the event majority of the trustees of the mutual fund decide to wind up a scheme or prematurely redeem the units of a close ended scheme, trustees are mandated to obtain the consent of the unitholders.
• Simple majority: Trustees to obtain consent of the unitholders by simple majority of the unitholders present and voting on the basis of one vote per unit held.
• Publication of voting results: Voting results to be published within 45 days of the publication of notice of circumstances leading to winding up.
• Failure to obtain consent: In case the trustees fail to obtain the consent, the scheme shall open for business activities from the second business day after publication of results of voting.

SEBI {KYC (Know Your Client) Registration Agency} Regulations, 2011 (KRA Regulations)

KRAs to carry out independent validation of KYC records and maintain an audit trail for any changes in KYC records of clients

KYC Registration Agencies (KRAs) have been made responsible to carry out independent validation of the KYC records uploaded onto their system by the Registered Intermediary (RI) and to maintain an audit trail of the upload / modification / download with respect to KYC records of client.

Further, the systems of the RIs and KRAs to be integrated to facilitate seamless movement of KYC documents to and from RIs to KRAs.

SEBI (Stock Brokers) Regulations, 1992 (Stock Broker Regulations) and SEBI (Depositories and Participants) Regulations, 2018 (DP Regulations)

Revised Networth requirement under Stock Broker Regulations and DP Regulations | Deposit & Fees requirements for members in EGR Segment

Amendments to Stock Brokers Regulations:

• Definition of Professional Clearing Member has been prescribed;
• Revised networth requirement within prescribed timelines for Trading Members (TMs), Self-Clearing Members (SCMs), Clearing Members (CMs) and Professional Clearing Members (PCMs);
• For EGR Segment, fees requirements and deposit requirements has been prescribed for the members in such segment.

Amendments to the DP Regulations:

• Revised networth requirement within prescribed timelines for stock broker depository participant.

SEBI (Foreign Portfolio Investors) Regulations, 2019 (FPI Regulations)

Unique registration numbers of FPIs

Amendments to FPI Regulations to enable SEBI to generate unique registration numbers of FPIs on receipt of basic details of the applicants seeking FPI registration from either of SEBI registered depositories.

SEBI (Settlement Proceedings) Regulations, 2018 (Settlement Proceedings Regulations)

Revision in timelines, clarificatory changes to provisions of the Settlement Proceedings Regulations, rationalisation of certain amounts

• Revision in the following timelines:

• Time-period for filing a settlement application rationalized to 60 days from the date of receipt of the show cause notice or a supplementary notice, whichever is later.
• Time-period for submission of Revised Settlement Terms Form, after the Internal Committee (IC), rationalized to 15 days from the date of the IC meeting.
• Time-period for remittance of settlement amount and compliance of all the settlement terms rationalized.

• Clarification of certain provisions relating to conditions precedent for settlement, non-monetary terms, provisions relating to irregularity in procedure, settlement scheme and legal costs, in the settlement process.
• All payments to be accepted only through the dedicated payment gateway.
• Rationalisation of the Proceeding Conversion Factor, the Base Values, the amounts in respect of disclosure violations (in Tables VII and VIII along with the Notes therein) and settlement terms attributable to the nature and extent of violations (in Table X along with the Notes therein).
• Separate guidelines for dealing with the procedure to be adopted for arriving at suitable terms pursuant to filing of a compounding application to be issued.