SEBI Changes Stock Market Rules: What This Means

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  • 02 Feb 2023

While there are no changes in the way you would trade in the stock market, some announcements affect a section of players like Foreign Institutional Investors (FIIs) and Mutual Funds. SEBI constantly monitors stock markets for enhancing the efficiency of both the buyer and the seller.

Here are a few of the changes explained:

  • Overhaul of foreign investment rules:

SEBI has simplified the definition of Foreign Institutional Investment. A Foreign Investor is registered with SEBI directly, or through sub-accounts owned by their broker (for institutions), or as a Qualified Foreign Investor (QFI). Going forward, foreign investors having less than 10% stake in a company would be categorized as Foreign Portfolio Investors. Any investment higher than that will fall under the Foreign Direct Investment (FDI) category.

With regard to the foreign investors, SEBI's board approved making their registration and compliance requirements much simpler and easier, especially for government entities and large investors like insurers, asset management companies and university funds from abroad.

IMPACT: The Indian rupee has touched record low levels. The government along with Reserve Bank of India and SEBI is expected to take steps to stem the fall. One such method is to make life easy for FIIs to invest in India. The SEBI decision to ease FII registration rules was long overdue.

  • Start-ups and small companies can list without IPO

SEBI has decided to allow start-ups and Small and Medium Enterprises (SMEs) to get listed in Institutional Trading Platform (ITP) without making an Initial Public Offering (IPO). However, it has restricted minimum investment value to Rs.10 lakh. These companies will not be permitted to raise capital from the public. Angel investors would be allowed to put in their money in only those firms, which are incorporated in India and that are not more than three years old. Investment in a company by an angel fund should not be less Rs.50 lakh and not more than Rs.5 crore. Also, this investment should be held for a period of at least three years.

IMPACT: Small investors cannot really invest in these companies. Many rich individuals and angel investors have invested in privately-held small companies. Such companies also have found raising money difficult as investors do not have public information on these companies. With the new rule, small companies can find investors easily. Investors too can find alternate buyers via the stock exchange trading platform. This is expected to make foreign and domestic investment into SMEs easy.

  • SEBI tightens share buyback

Companies that launch a buyback offer, wait for the right price to execute transactions through the stock market mechanism. They currently have a period of 12 months in which they can complete the buyback. This period has been reduced to 6 months. Also, SEBI has made it mandatory for companies to purchase at least 50% of the offer. The companies also have to keep 25% of the offer amount in an escrow account. Companies unable to meet the target would be barred from launching another offer for one year along with a penalty (up to 2.5% of the sum in the escrow account).

IMPACT: These measures safeguard the interest of small shareholders. With this ruling, companies will have to buyback a larger number of shares as compared to earlier and also complete the program in a shorter period of time. These measures will avert companies from making non-serious offers with a view to wrongly influence share prices.

Benefit or no benefit?

Why SEBI’s simpler foreign investment rules will not save the rupee: Read more

SEBI buyback rules welcome but a bit over the top: Read more

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