5 Important Market Reforms By SEBI To Know About

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  • 16 Feb 2023

The Securities and Exchange Board of India (SEBI), headed by its new chairman—Ajay Tyagi, announced new measures and products. This deals with the equity market, mutual funds, and even the commodity market. It may well be worth your time to know these new announcements too.

Here are the five of the announcements that could affect you:

  • IPO share allotments: Investors are classified into different categories. Each category has to follow its own set of rules while investing in Initial Public Offerings (IPOs). Non-banking financial institutions (NBFCs) will now be classified as ‘Qualified Institutional Buyers’ (QIBs). Until now, banks and insurance companies were classified as QIBs. Not all NBFCs will be classified as QIBs, though. Only those registered with the RBI and with a net worth of over Rs 500 crore can be classified as QIBs.

Why this matters?

When a company issues shares in an IPO, half of them are reserved for QIBs. If you are not qualified as a QIB, you would take up shares available to the general public. The non-institutional (i.e HNI and Retail) category gets 50% of the shares. With NBFCs now part of the QIB category, retail and HNI investors stand to get more shares allotted in IPOs.

  • Usage of IPO proceeds: The market regulator will now regulate how companies use the money they raise through IPO over Rs 100 crore. Earlier, it used to regulate any proceeds over Rs 500 crore.

Why this matters?

When companies list shares in the stock market, they issue shares through the IPO. After selling these shares to the public, the company raises money. It then uses this money for business purposes. However, companies may not use the money for the purpose stated in the documents. This could be problematic for investors. This is why SEBI wants to regulate companies more.

  • Instant redemption: You can now buy and sell Liquid Funds instantly. However, this is only for amounts up to Rs 50,000 on a per-day basis. You can use e-wallets to buy Liquid Funds up to Rs 50,000 per year.

Why this matters?

Liquid Funds just got more liquid. Earlier, it could take about two-three working days for the money to get credited to your account. Now, instant buying and selling of such funds could make them more like savings bank accounts and thus, more appealing.

  • Commodity options trading: SEBI finally allowed commodity markets to start trading 'options' contracts. This was first announced in the 2016 budget.

Why this matters?

‘Options’ are contracts where you agree to buy or sell at a fixed price in the future date. However, it is not compulsory to execute these contracts. You can opt to not ‘buy’ at that date. This makes Options a good tool to hedge prices. This could help farmers and other participants cut down losses due to changes in prices.

  • A single license regime: SEBI announced it will soon give exchanges and brokers a single license to trade in both equity and commodities. Until now, the SEBI allotted separate licenses for equity trading and commodity trading.

Why this matters?

Exchanges and brokers could only participate in one market—either Equity or commodities. With a single license, the stock exchanges NSE and BSE could allow commodity trading. The commodity exchange MCX too could get into stock trading. The same could apply to brokers too.

Also Read:

SEBI lines up reforms for deeper markets, to check black money Read more

SEBI pending cases surge after implementation of new norms Read more

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