Tag: SEBI

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SEBI notifies eight entities to carry out e-KYC Aadhar authentication

In view of the COVID-19 pandemic, the Government of India, Department of Revenue had vide Gazette Notification No. G.S.R. 261(E) dated April 22, 2020 (“Notification”) permitted, interalia eight reporting entities to carry out electronic know-your-customer (“e-KYC”) Aadhar authentication by exercising its powers under the proviso to Section 11A of the Prevention of Money-Laundering Act, 2002 (“PMLA”).

Section 11A of PMLA lays down the documents using which a reporting entity must verify the identity of its clients and the beneficial owner. E-KYC using Aadhar authentication is only permitted to banking companies. However, if the Central Government is satisfied that a reporting entity other than a banking company, complies with the standards of privacy and security under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 then it may, post consultation with Unique Identification Authority of India (“UIDAI”) and the appropriate regulator, permit such entity to perform e-KYC using Aadhar authentication.

Accordingly, in furtherance of the Notification, the Securities and Exchange Board of India (“SEBI”), vide its circular dated May 12, 2020 (circular no. SEBI/HO/MIRSD/DOP/CIR/P/20 has allowed the following eight entities to undertake e-KYC Aadhar authentication of their clients:

BSE Limited
National Securities Depository Limited
Central Depository Services (India) Limited
CDSL Ventures Limited
NSDL Database Management Limited
NSE Data and Analytics Limited
CAMS Investor Services Private Limited
Computer Age Management Services Private Limited

The Central Government had also notified Link Intime India Private Limited for carrying out the authentication of the Aadhaar number of clients using e-KYC authentication facility. However, SEBI is yet to recommend them.

The eight notified entities have to register themselves with UIDAI as KYC user agency post which they shall allow SEBI registered intermediaries / mutual fund distributors to undertake Aadhaar authentication in respect of their clients for the purpose of the KYC. The SEBI registered intermediaries / mutual fund distributors who want to avail the facility of Aadhar authentication will have to enter into an agreement with a KYC user agency as well as get themselves registered with UIDAI as sub KYC user agency. The intermediaries registered as KYC user agencies or as sub KYC user agencies are required to follow the processes set out in the SEBI circular dated November 5, 2019, including obtaining permission from UIDAI for sharing e-KYC data, maintenance of auditable logs of transactions were e-KYC data is shared and mechanisms for monitoring irregular transactions. The process and use of technology for online KYC verification has also been clarified by SEBI by way of circular dated April 24, 2020.

This is a welcome move by SEBI given the lockdown prevailing in the country, as this will allow investors to comply with the applicable KYC requirements using Aadhar authentication and they will not have to physically visit the intermediaries. Moreover, it will lead to ease of investing, customer convenience, increased efficiency and reduced timelines for onboarding of clients. Using the e-KYC Aadhar authentication, one can now complete the KYC requirement of their demat account, brokerage account, trading account, make investments in mutual funds and other securities including applying to new systematic investment plan, systematic transfer plan and, dividend transfer plan, subscribe to overseas direct investments. Resident Indian foreign portfolio investors may also utilise the e-KYC Aadhaar authentication to comply with their KYC requirements. Further, one may now undertake e-KYC using Aadhar authentication with their SEBI registered portfolio managers, asset managers and wealth managers and other SEBI registered intermediaries and mutual fund distributors.

It is to be noted that e-KYC using Aadhar authentication is only optional and investors may continue to use the other officially valid documents as notified by the Central Government to be KYC compliant. Additionally, none of the reporting entities can store a client’s core biometric information or the Aadhar number.

Please refer to the SEBI circular dated May 12, 2020 (circular no. SEBI/HO/MIRSD/DOP/CIR/P/20) for more details.

Tags AADHAR, LOCKDOWN, SEBI

Key aspects of SEBI’s circular re relaxations relating to procedural matters in issues and listings

Introduction

In light of the recent developments relating to the COVID-19 pandemic (and its ongoing consequent impact on the Indian and global economy), the Securities and Exchange Board of India (“SEBI”), had recently, vide its two circulars, each dated April 21, 2020 (“April Circulars”), granted (a) temporary relaxations from compliance with certain provisions of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended (“SEBI ICDR Regulations”), and (b) one-time relaxation with respect to validity of SEBI observations, in respect of rights issues, with an intent to improve fund raising access to listed corporate entities as well as revive investor confidence in the securities market. With the aforesaid intention in mind, SEBI has issued another circular dated May 6, 2020 (Circular No. SEBI/HO/CFD/CIR/CFD/DIL/67/2020) (“Circular”), for granting relaxation relation to (a) certain procedural matters in relation to rights issues, and (b) authentication of offer documents and inspection of documents electronically for all capital markets issues.

The Circular shall be applicable for all rights issues (including fast track rights issues) opening before July 31, 2020, and for all offer documents filed until July 31, 2020.

Key aspects of the Circular

A. Relaxation in respect of rights issues

i. Availability of letter of offer and other issue materials

Regulation 77(2) of the SEBI ICDR Regulations prescribes that the abridged letter of offer (along with application form), can be despatched either through registered post, speed post, courier service or by electronic transmission to all existing shareholders of the issuer company, prior to the opening of the issue.

However, keeping in mind the various practical challenges that may arise in the COVID-19 era, particularly in relation to engaging courier or postal services, SEBI has now specifically clarified that failure to dispatch the aforesaid offering material through registered post or speed post or courier services, due to prevailing COVID-19 related conditions, will not be treated as non-compliance, for rights issues opening up to July 31, 2020. To supplement the aforesaid relaxation, the following additional steps are required to be undertaken:

issuers are required to publish the letter of offer, abridged letter of offer and application forms on its website as well as on the websites of the lead manager(s) to the issue, registrar to the issue and stock exchanges; and
issuers as well as the lead manager(s) to the issue are required to undertake adequate steps to reach out to the shareholders through other means, including through SMS, ordinary post, audio-visual advertisements on television, as well as digital advertisements.

These measures help issuers negate the difficulties they may face in respect of physical distribution of offering material. The availability of offering material on the internet would ensure that potential investors get access to the same through virtual means. Having said that, digital modes of communication may not be preferred by a select set of investors, who are either not accustomed to such platforms, or may face challenges in receiving uninterrupted internet network connectivity.

Thus, the aforesaid clarification showcases SEBI’s positive intent towards making the Indian capital markets regime a technologically driven and an environment friendly one, and we may hope for increased usage of electronic transmission systems for dispatch of the aforesaid offering materials, not only during the next couple of months, but also in the coming years in the post COVID-19 era.

Further, in light of the Circular and other representations received re provision of clarification on mode of issue of notice (referred to in Sections 62(1)(a)(i) of the Companies Act, 2013 (“Companies Act”) for rights issues by listed companies, in view of difficulties faced by such companies in sending notices through postal/courier services on account of the threat posed by the COVID-19 situation, the Ministry of Corporate Affairs, Government of India, issued a clarificatory circular dated May 11, 2020 (General Circular No. 21/2020) (the “MCA Circular”). The MCA Circular clarified that the inability to dispatch the notice (referred to hereinabove) by listed companies (which comply with the Circular) to their shareholders through registered post, speed post or courier would not be viewed as a violation of Section 62(2) of the Companies Act. The MCA Circular shall be applicable in case of rights issues opening up to July 31, 2020.

ii. Issue-related advertisements

Prior to the opening of the rights issue, the issuer is required to publish advertisement(s) in certain specific newspapers (“Statutory Newspapers”), containing the disclosures mandated under Regulation 84(1) of the SEBI ICDR Regulations (“Statutory Advertisement(s)”). However, given the difficulties in publishing physical advertisements (i.e. in newspapers, hoardings, banners, etc.) and the potential inefficacies with respect to their outreach in the COVID-19 era, SEBI has provided a few additional mechanisms for publication of Statutory Advertisements and other issue-related advertisements:

(a) issuers have the flexibility to publish the Statutory Advertisement confirming dispatch of abridged letter of offer and application form in newspapers other than the Statutory Newspapers;

(b) all such advertisements must also be made available on the websites of the issuer, lead manager(s) to the issue, registrar to the issue, and the stock exchanges; and

(c) issuers are also required to make use of advertisements through other electronic media such as television channels, radio and the internet for disseminating information relating to the application process. Further, for the first time, SEBI has permitted such advertisements to be made in the form of crawlers or tickers as well.

The Circular also requires issuers to disclose additional details in Statutory Advertisement(s), specifically in relation to the application process for shareholders who have not been served notice via electronic modes.

iii. Application by physical shareholders

In 2008, SEBI, while acknowledging the market practice of trading of rights entitlements in physical form, envisaged the establishment of a uniform and exchange driven mode of trading of rights entitlements, and released a paper for receiving public comments on the proposed electronic rights issue process and e-trading of rights entitlements. While the proposal for establishing an e-trading platform for rights entitlements did not see the light of the day, SEBI had issued a circular for streamlining certain aspects of the rights issue process on January 22, 2020 (“January Circular”), with the intention of, among other things, reducing issue timelines and permitting trading of rights entitlements in dematerialized form. Pursuant to the January Circular, rights entitlements would have to be mandatorily credited to the demat account of eligible shareholders in dematerialized form, and physical shareholders were required to provide their demat account details to issuer or the registrar to the issue for credit of rights entitlements (within a period of two working days prior to the issue closing date). However, given certain impossibilities during the COVID-19 era, investors (especially those holding securities in physical form) may face several hurdles while undertaking the process of opening a demat account or communicating their demat account details to the issuer or registrar, prior to the issue closing date. While the January Circular was introduced with an intention of establishing an efficient process of credit of rights entitlements to respective demat accounts (which in turn would facilitate the existence of a robust rights entitlements trading platform), the onset of the COVID-19 pandemic has forced SEBI to offer certain relaxations to shareholders.

Keeping in mind the aforesaid challenges, SEBI has, vide the Circular, allowed physical shareholders to submit their applications re the rights issue, irrespective of whether they are able to open demat accounts or communicate details of the demat accounts in accordance with the requirements prescribed in the January Circular. However, the submission of applications by such physical shareholders would be allowed, subject to (a) the institution of a mechanism by the issuer, lead manager(s) to the issue and other intermediaries for allowing such shareholders to apply in the rights issue, and (b) adequate steps being taken by the issuer and lead manager(s) to the issue for communicating the mechanism described in (a) hereinabove to the aforesaid shareholders prior to opening of the issue. Further, such physical shareholders availing of the aforesaid relaxation shall not be eligible to renounce their rights entitlements, and shall receive shares in dematerialized form only.

In light of the aforesaid, we believe that issuers and intermediaries may need to consider utilizing the issuer’s suspense accounts (including the one opened in accordance with Regulation 39 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended (“SEBI Listing Regulations”)) where such rights entitlements and shares (to be credited to the physical shareholders who have applied for allotment of equity shares), will be kept in abeyance in electronic mode by issuers, until the aforesaid shareholders provide details of their demat account particulars to the issuer or registrar, in accordance with the procedure as prescribed under Regulation 39 of the SEBI Listing Regulations.

iv. Non-cash based application process

Pursuant to the January Circular, all eligible shareholders are mandatorily required to use the application supported by blocked amount (“ASBA”) mechanism while applying for shares in a rights issue. However, the onset of the COVID-19 pandemic may have created certain practical roadblocks with respect to the transition to an ASBA only mechanism.

Shareholders who have not transitioned to using an ASBA account may face hurdles while trying to do so in the COVID-19 era, especially in light of the existence of a nation-wide lockdown. Further, an SCSB, a critical intermediary at the forefront of the ASBA process, may find it difficult to function optimally with reduced staff strength, given the remote working landscape that is now prevalent across industries.

In light of the practical difficulties and systemic challenges faced by both investors as well as intermediaries, SEBI has permitted issuers (along with the lead manager(s), the registrar, and other intermediaries) to institute optional mechanisms (non-cash mode only) to accept the application money from the shareholders. In view of the aforesaid, issuers and other intermediaries may look to establish mechanisms whereby application monies can be paid by way of online transfers into designated accounts. However, the Circular clarifies that no third party payments shall be allowed in respect of any application.

In order to ensure that relaxations provided hereinabove are utilised by the issuer and intermediaries towards achieving investor protection, SEBI has, vide the Circular, imposed a duty on the issuer and the lead manager(s) to the issue to ensure, in respect of the mechanisms referred in points (iii) and (iv) above, that:

(a) the mechanisms shall serve as an additional option, and would not be a replacement of the existing process, and efforts are made to adhere to the existing prescribed framework;

(b) the mechanisms function in a transparent and robust manner (with adequate checks and balances), and the transparency, fairness and integrity of such mechanisms are to the satisfaction of the lead managers and registrar to the issue, without imposing additional costs on investors;

(c) FAQs, a dedicated online investor helpdesk and helpline are created to guide investors through the application process, and to resolve difficulties faced on a priority basis; and

(d) the issuer, lead manager(s), registrar and other intermediaries are responsible for all investor complaints.

B. Relaxations in respect of all offer documents

i. Relaxations in relation to digital signatures and electronic inspection of material documents

In respect of all offer documents filed until July 31, 2020, SEBI has now permitted:

(a) usage of digital signature certifications for authenticating and certifying offer documents; and

(b) the issuer and lead manager(s) to establish a procedure for electronic inspection of material documents.

While the former is an option that may be used by the issuer, the latter appears to be a mandatory requirement. In light of the aforesaid, issuers may now be required to look for cost-effective ways of providing access to these documents, which may be through secured mechanisms, such as password-protected dedicated portal on the issuer’s website (wherein entry may be permitted via communications sent by way of SMS, emails, etc.).

Moreover, on a plain reading of the Circular, it appears that this part of the Circular shall be applicable for ‘all offer documents filed until July 31, 2020’ (and not just limited to rights issues alone), which may mean that inspection of material documents shall only be done electronically in case of all issues wherein the respective offer document (i.e. red herring prospectus, prospectus, shelf prospectus and letter of offer, as the case may be) is filed until July 31, 2020.

Conclusion

In these turbulent times of the COVID-19 pandemic, SEBI is trying to leave no stone unturned to revive Indian capital markets. With the issuance of the April Circulars and the Circular, it is quite evident that SEBI is looking to improve access to real-time fund raising options, with a specific focus on making the rights issue process technology friendly. While SEBI has tried to restore issuers’ and investors’ confidence in Indian capital markets with a slew of relaxations, it has kept in mind investor protection ideals and traditions while offering the same.

However, it must be borne in mind that issuers, lead manager(s), registrars and other market intermediaries may face increased costs in the process of setting up the mechanisms discussed hereinabove. Moreover, it must not be forgotten that advertisements and other publicity materials issued pursuant to these relaxations would still have to pass the rigours of publicity restrictions prescribed under the SEBI ICDR Regulations. Regardless of the aforesaid, the efficacy of these relaxations can be completely examined only after the completion of few rights issues and interaction with market intermediaries.

Please refer to the SEBI circular dated May 6, 2020 (circular no. SEBI/HO/CFD/DIL2/CIR/P/2020/78) for more details.

This blog is authored by Arka Mookerjee, Siddhartha Desai, and Ananth Balaji Sundararaman.

Tags Capital Markets, LOCKDOWN, SEBI

Extension of Lockdown – Order dated 03 May 2020 issued by the State Government of Tamil Nadu

The State Government of Tamil Nadu has vide notification no. G.O.(Ms)No.217 dated 03 May 2020, issued the following orders for the effective containment of COVID-19:

The lockdown period has been extended from 00.00hrs of 04.05.2020 to 24:00hrs of 17.05.2020.
Agricultural and other activities already permitted, would continue to be permitted during the lock-down period.
Existing restrictions for the below mentioned operations shall stand unaltered until further notification:

a. Schools, colleges, training centers, research institutions and all other educational institutions;

b. Public gatherings at place of worship and religious centers;

c. Theaters, shopping malls, gymnasiums, swimming pools, sports complexes, assembly halls and similar places;

d. Gatherings and processions of all nature including religious functions, social, political, sports, entertainment, academic and cultural and other gatherings;

e. Air, rail and public bus transport for passenger movement (except dedicated staff buss/Vans used by industries and establishments);

f. Taxi, auto, cycle rickshaw;

g. Metro rail services;

h. Inter-state public movement;

i. Hotels (excluding the employees’ accommodation), lodges and resorts;

j. Mall, barber shop, salon, spa, & beauty parlor;

k. Air-conditioned showrooms selling jewels, clothes and departmental stores will not be permitted;

l. Funeral procession with not more than 20 persons; and

m. Marriages upon adherence to existing restrictions.
No activity shall be permitted in the containment zones.
Strict surveillance will be done on gathering of more than 5 people.
The following activities are allowed in all areas falling under the jurisdiction of Greater Chennai Police (excluding containment zones):

a. Construction works, provided the workers reside in the place where the construction work is carried on. Workers from outside should be brought on a one time basis.

b. Construction works (including laying of roads) undertaken by Government and Public Sector Undertakings.

c. Undertakings functioning in SEZ, EOU and Export Units: provided that 25% workers alone (minimum 20 workers) shall be permitted upon such undertakings allowed after due inspection and assessment by Commissioner, GCC / District Collector. Strict access control must be ensured. Employees shall travel only in vehicles operated by the respective Organisation.

d. IT and ITes services, provided that 10% workers alone (minimum 20 workers) shall be permitted. Employees shall travel only in vehicles operated by the respective Organisation.

e. Shops selling essential commodities from 6.00 A.M till 5.00 P.M. shall be permitted.

f. E- Commerce services providers, handling food and essential commodities; shall be permitted based on the already permitted timings.

g. Restaurants shall be permitted from 6.00 A.M till 9.00 P.M. Parcels alone shall be permitted.

h. All Standalone and neighborhood shops (except saloons, spa and beauty parlours); construction hardware, cement, construction materials, sanitaryware, electrical items, mobile phone, computers, household appliances, electric motor and spectacles stores sold by standalone shops shall be permitted from 11.00 A.M till 5.00 P.M.

i. Self-employed workers such as plumber, electrician, air conditioner mechanics, carpenter, home care providers for persons with special needs and household workers shall be permitted after obtaining necessary permission received from Chennai Corporation Commissioner/ District Collector.
The following activities are allowed in all areas across the states (except for areas under the jurisdiction of Greater Chennai Police and containment zones)

a. All industries, including the textile industries, located outside the Corporation/Municipal limits of the state (except in containment zones) shall be allowed to function with 50% workers (minimum 20 persons). All industrial activities across the village and town panchayat areas shall be allowed.

b. However, in town panchayat having a population of more than 15,000, the District Collector should permit the operations of textile industries with 50% workers based on the local conditions.

c. Functioning of SEZ, EOU, industrial estates, industrial townships in rural and urban areas shall be allowed with 50 % workers.

d. Spinning Mills located in village and town panchayat area shall be permitted to operate with 50% workers on a shift basis by adhering to physical distancing norms.

e. The operations of leather and textile industries dealing with designing and sampling for export purposes shall be allowed in the Municipalities and Corporations with the District Collectors’ permission and with 30% workers after accessing the local situation.
f. Further, the District Collector may permit all export units in urban areas to operate with 50% workers, based on accessing the local condition.

g. IT hardware manufacturing unit are permitted to operate with 50% workers.

h. IT and ITeS services are permitted to operate with 50% employees (minimum 20 persons).

i. Construction works carried in urban areas; provided the workers reside in the place where the construction work is carried on.

j. Construction works (including laying of roads) undertaken by Government and Public Sector Undertakings;

k. Self-employed workers such as plumber, electrician, air conditioner mechanics, carpenter, shall be permitted to work upon permission received from District Collector.

l. Care givers for persons with special needs, physically challenged, elderly and sick patients, domestic helpers shall be permitted upon obtaining permission from the District Collector.

m. Printing press operations shall be permitted.

n. Shops selling construction hardware, cement, construction materials, sanitaryware, electrical equipment for enabling construction work shall be permitted to operate between 9.00 A.M. to 5.00 P.M. both in urban and rural area. There shall be no restriction on transportation of construction materials.

o. Standalone establishments including those for mobile phones, computers, home appliances, electric motor repair, spectacles sale and repair shall be permitted to operate between 10.00 A.M. to 5.00 P.M.

p. All the standalone establishments situated in rural areas shall be permitted to operate from 9.00 A.M. to 5.00 P.M.

q. Restaurants shall operate between 6 A.M. to 9.00 P.M. for takeaway only.

r. E-Commerce establishments shall operate as permitted earlier.

s. District Collectors may upon circumstances permit the operation of all the standalone shops shall operate between 10 A.M. to 5 P.M. except malls and market complexes located in municipalities and corporations (Salon, spa and beauty parlour are not permitted).
All industrial establishments shall strictly adhere to the SOPs listed out in Para VIII (Strict adherence to SOPs), Annexure I (SOP to be adhered with while restarting industries), Annexure II (SOP for construction industry) and Annexure III (SOP and measures to be taken if a COVID-19 positive is identified in a facility) of the notification.
All activities mentioned below shall be permitted to function along with those activities that were already permitted:

a. Agricultural and allied activities, plantation (including agro processing);

b. Marine and inland fishing subject to the instructions issued by the fisheries department;

c. Animal husbandry, milk, milk processing and poultry;

d. Healthcare institution including AYUSH centers, pharmacies, laboratories and diagnostics;

e. All manufacturing of essentials;

f. All continuous process industries;

g. In case of industries that are not permitted to operate – essential maintenance activities shall be carried on for safety purposes with minimal skeletal staff;

h. Manufacture and sale of agricultural implements, fertilizers, insecticides, pesticides, etc.;

i. Financial institutions like RBI, SEBI, Banks, NBFCs, ATMs and related services;

j. All media, postal services, telecom services;

k. Public utility services;

l. Social sector activities like home for senior citizens, etc.;

m. All goods carriers;

n. Logistics, warehousing and cold chain;

o. All seaports, airports and railways stations for cargo/goods movement, etc.;

p. Construction activities;

q. Mining activities and mineral production;

r. Amma canteens;

s. Hotels, e-commerce and shops selling food, grocery, and essential commodities;

t. MGNREGS activities
If it becomes difficult to ensure safety, shops/markets selling meat, fish, vegetables, etc. can be shifted to larger spaces;
Major industries, IT and ITes establishments, and construction activities shall be permitted after obtaining passes for the vehicles used for transportation of vehicles; Only 50% of the seating capacity shall be occupied;
No separate passes shall be required for MSME located in the specified areas. However, MSME employees should carry the ID card issued by the company.
All state government and central government offices shall function with 33% staff strength. However, all essential government services (including registration department) shall function with full strength; No separate pass shall be required while moving on duty.

The Tamil Nadu State Government has ordered the Greater Chennai Corporation and District Collectors to follow the above guidelines and accord necessary permissions to all permitted industries, enabling then to start their operations from 06 May 2020 onwards.

Violation of these measures shall be liable to be proceeded under Section 51 to 60 of the Disaster Management Act, 2005 besides legal action under Section 188 of Indian Penal Code and other relevant provisions

This notification is accessible at: https://cms.tn.gov.in/sites/default/files/go/revenue_e_217_2020_0.pdf

Tags LOCKDOWN, SEBI, SOCIAL DISTANCING, TAMIL NADU

Reduction by SEBI in broker turnover fees and filing fees on offer documents for Public issue, Rights issue and Buyback of shares

In view of the COVID-19 pandemic, the Securities and Exchange Board of India (SEBI), vide its press release no. 24/2020 dated April 27, 2020, (Press Release), has decided to reduce broker turnover fees and filing fees on offer documents for Public issue, Rights issue and Buyback of shares.

By way of this Press Release, SEBI has decided that the broker turnover fee will be reduced to 50% of the existing fee structure for the period June 2020 to March 2021. The benefit of this reduction in fees will automatically be passed on to the investors as well. Further, filing fees on offer documents for Public issue, Rights issue and Buyback of shares will be reduced to 50% of the existing fee structure. This will be effective for documents filed from June 1, 2020 to December 31, 2020.

While the above development is based on a press release issued by SEBI, we anticipate that in due course of time, a detailed circular may be issued by SEBI for amending the relevant provisions of the applicable regulations including but not limited to the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended, the Securities and Exchange Board of India (Buy Back of Securities) Regulations, 2018, and the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992.

Please refer to the Press Release dated April 27, 2020 (no.: 24/2020) for more details.

Tags SEBI

SEBI’s measures to facilitate fund raising from capital markets in the current COVID-19 scenario

In view of the COVID-19 pandemic and nation-wide lockdown and with a view to improving access to funding to corporates through capital markets, the Securities and Exchange Board of India (SEBI), by way of press release dated April 21, 2020, bearing no. PR No.23/2020, has granted certain temporary relaxations from compliance with certain provisions of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended, (SEBI ICDR Regulations) related to rights / public issuances by listed entities.

Pursuant to the press release, SEBI has notified two circulars dated April 21, 2020, each for (i) relaxations to issuers from certain provisions of the SEBI ICDR Regulations in respect of rights issue; and (ii) one-time relaxation to issuers with respect to validity of SEBI observations. The contents of the circulars are as follows:

(i) Relaxations to issuers from certain provisions of the SEBI ICDR Regulations in respect of rights issue

SEBI, vide its circular dated April 21, 2020, (circular no. SEBI/HO/CFD/CIR/CFD/DIL/67/2020) has granted temporary relaxation to the (a) minimum subscription requirements for rights issues; (b) threshold for not filing the draft letter of offer; and (c) eligibility conditions related to fast track rights issues. These relaxations are applicable to right issues that open on or before March 31, 2021 and are not applicable for issuance of warrants.

(a) Eligibility conditions related to fast track rights issues

SEBI has granted the following temporary compliance relaxations with respect to the eligibility conditions related to fast track rights issues:

The eligibility requirement related to period of listing of equity shares of the issuer on any stock exchange and compliance with the equity listing agreement or the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as applicable, has been reduced from 3 years to 18 months;
The requirement of average market capitalisation of public shareholding of INR 250 crores has been reduced to INR 100 crores; The condition related to no audit qualifications on issuer’s audited accounts has been replaced with the requirement to disclose the impact of audit qualifications on issuer’s financials; The condition related to suspension from trading of equity shares of issuer as a disciplinary measure has been reduced from 3 years to 18 months; and Certain other eligibility conditions with respect to period of compliance with the provisions of the listing regulations, ongoing action initiated by SEBI against the issuer / promoters / directors and settlement of violation of securities laws have also been relaxed.

(b) Minimum subscription requirements for rights issues

The existing minimum subscription to be received in a rights issue shall be at least 90% of the offer through the letter of offer. However, in order to provide greater flexibility in fund raising, this threshold for minimum subscription requirements for a rights issue has been reduced from existing 90% to 75% of the offer size, subject to the condition that if the rights issue is subscribed between 75% to 90%, issue will be considered successful subject to the condition that out of the funds raised, at least 75% of the rights issue size shall be utilized for the objects of the issue other than general corporate purpose.

An issuer in case of rights issue of size less than INR 10 crores shall prepare the letter of offer in accordance with SEBI ICDR Regulations. However, in order to reduce the time involved in fund raising and for easing the compliance requirements due to the COVID-19 pandemic, the threshold for not filing the draft letter of offer has been increased from INR 10 crores to INR 25 crores in a rights issue.

Please refer to the SEBI circular dated April 21, 2020, (circular no. SEBI/HO/CFD/CIR/CFD/DIL/67/2020) for more details.

(ii) One-time relaxation to issuers with respect to validity of SEBI observations

In view of representations from various industry bodies, SEBI, vide its circular dated April 21, 2020, (circular no. SEBI/HO/CFD/DIL1/CIR/P/2020/66) has provided one-time relaxation with respect to validity of SEBI observations.

As per SEBI ICDR Regulations, any public issue/rights issue may be opened within 12 months from the date of issuance of the observations by SEBI. However, due to the prevailing COVID-19 pandemic, for all public/rights issuers whose SEBI observations have expired or shall expire between March 1, 2020, and September 30, 2020, SEBI has extended the validity of those observations by 6 months from the date of its expiry, subject to an undertaking from the lead manager of the issue confirming compliance with the SEBI ICDR Regulations.

Further, an issuer, whose offer document is pending receipt of SEBI observations and whose estimated issue size is increasing or decreasing by more than 20% shall be required to file a fresh offer document. However, SEBI has relaxed this requirement and permitted to increase or decrease the fresh issue size by up to 50% of the estimated issue size (instead of the present limit of 20%) without requiring to file fresh draft offer document with SEBI. This relaxation shall be applicable for all issues (i.e. IPOs, rights issues and FPOs) opening before December 31, 2020, subject to the following conditions:

there has been no change in the objects of the issue;
the lead manager undertakes that the draft offer document is in compliance with provisions of the SEBI ICDR Regulations;
and the lead manager shall ensure that all appropriate changes are made to the relevant section of draft offer document and an addendum, in this regard, shall be made public.

Please refer to the dated April 21, 2020, SEBI circular (circular no. SEBI/HO/CFD/DIL1/CIR/P/2020/66) for more details.

Tags Capital Markets, LOCKDOWN, SEBI

Relaxation in adherence to prescribed timelines issued by SEBI due to COVID-19

In wake of the current nationwide lockdown of 21 days as directed by Government of India SEBI has considered the requirement to extend the timelines for processing of various investor requests pertaining to physical securities and compliance and disclosures to be made under SEBI Regulations and various SEBI circulars. In the event of further extension in the lockdown period as directed by Government of India / State Governments, additional relaxation in prescribed timelines for equal number of extended days in lock down is also being given to intermediaries / market participants for the following matters:

Processing of Remat Requests;
Processing of Transmission Requests;
Processing of request for Issue of Duplicate Share Certificates;
Processing of Requests for Name Deletion/ Name Change/Transposition/ Pending Share Transfers (Re-lodgement cases in the case of share transfers);
Processing of Requests for Consolidation / Split / Replacement of Share Certificates / Amalgamation of Folios;
Handling Investor Correspondence / Grievances / SCORES complaint;
Submission of Half Yearly Report to SEBI pursuant to Circular No. CIR/MIRSD/7/2012 dated July 05, 2012;
Compulsory Internal Audit of RTAs by CA / CS / CMA holding Certificate of Practice and Certified Information Systems Auditor (CISA)/ Diploma Information Systems Auditor (DISA) pursuant to Circular dated April 20, 2018, issued by SEBI;
Submission of Audit Report by CISA/CISM qualified or equivalent auditor by QRTAs to SEBI along with comments of the Board; pursuant to Circular dated September 08, 2017 issued by SEBI on Cyber Security and Cyber Security Resilience framework for QRTAs
Submission of Compliance Report by QRTAs duly reviewed by the Board of Directors of the QRTA to SEBI on Enhanced monitoring ofQRTAs pursuant to Circular dated August 10, 2018 issued by SEBI;
Regulation 74(5) of the SEBI (Depositories and Participants) Regulations, 2018 on Manner of surrender of certificate of security; and
Regulation 76 of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018 on audits.

Please refer to the SEBI circular no. SEBI/HO/MIRSD/RTAMB/CIR/P/2020/59 dated April 13, 2020 for more details.

Tags LOCKDOWN, SEBI

SEBI notifies the Capital and Debt Market services that shall remain functional

In its order no. 40-3/2020-DM-I(A) and the guidelines dated 24 March 2020, the Ministry of Home Affairs, inter alia, stated that all commercial and private establishments shall be closed down except for capital and debt market services as shall be notified by the Securities and Exchange Board of India (“SEBI”). (The details of the order and the guidelines can be accessed here)

Pursuant to the above mentioned order, SEBI, on 24 March 2020, notified vide Circular No.: sebi/covid-19/2020/01, that the head/regional/local offices of SEBI shall remain functional with a minimum number of employees.

The notification, further, listed the entities which shall be considered as providing capital and debt market services under the above order and shall remain functional, as follows:

Recognised Stock Exchanges,
Recognised Clearing Corporations,
Depositories,
Custodians,
Mutual Funds,
Asset Management Companies,
Stock Brokers,
Trading Members,
Clearing Members,
Depositories Participants,
Registrar and Share Transfer Agents,
Credit Rating Agencies,
Debenture Trustees,
Foreign Portfolio Investors,
Portfolio Managers,
Alternative Investment Funds,
Investment Advisers,
Any other entities and regulated activities as notified by SEBI.

Tags SEBI

SEBI relaxes compliance under SEBI-LODR and under SEBI circular relating to Standard Operating Procedure

The Securities and Exchange Board of India (“SEBI”), vide its circular dated 26 March 2020 (Circular no. SEBI/HO/CFD/CMD1/CIR/P/2020/48) has granted the following relaxations from compliance with certain provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI-LODR”) and the SEBI circular dated 22 January 2020 relating to Standard Operating Procedure (Circular no. SEBI/HO/CFD/CMD/CIR/P/2020/12).

Relaxations with respect to filings and committee meetings under SEBI-LODR:

Reg.	Particulars	Frequency	Original Due Date	Relaxation Period	Extended Date
19(3A)	The nomination and remuneration committee shall meet at least once in a year	Annual	31 March 2020	3 months	30 June 2020
20(3A)	The Stakeholders Relationship committee shall meet at least once in a year.	Annual	31 March 2020	3 months	30 June 2020
21(3A)	The Risk Management Committee shall meet at least once in a year.	Annual	31 March 2020	3 months	30 June 2020
40(9)	Filing relating to certificate from Practicing Company Secretary on timely issue of share certificates	Half yearly Due within 1 month of the end of each half of the financial year	30 April 2020	1 month	31 May 2020
44(5)	Filing relating to holding of AGM by top 100 listed entities by market capitalization for FY 2019-20	Annual Due within a period of 5 months from the date of closing of the financial year	31 August 2020	1 month	30 September 2020

2. The circular of SEBI dated 22 January 2020 relating to Standard Operating Procedure, which was originally intended to come into effect for the compliance periods ending on or after 31 March 2020 shall now come into effect from the compliance periods ending on or after 30 June 2020. Until then the SOP circular dated 3 May 2018 shall be applicable.

3. Exemption from publication of advertisements in newspapers, as required under Regulation 47, for all events till 15 May 2020.

Tags SEBI

SEBI relaxes compliance requirement pertaining to disclosure filings under the SAST Regulations, 2011

In view of the developments arising due to the spread of the COVID-19 pandemic, and the consequent travel restrictions and various other logistical challenges, a need for temporary relaxations in compliance with certain deadlines in SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“SAST Regulations”) was felt.

Therefore, SEBI, vide circular No. SEBI/HO/CFD/DCR1/CIR/P/2020/49 dated March 27, 2020, issued certain relaxations for compliance with respect to the disclosure filings to be made under the provisions of the SAST Regulations.

The disclosure filings under Regulations 30(1), 30(2) and 31(4) of the SAST Regulations, requires shareholders to compile, collate, and disseminate information of their consolidated shareholding as on March 31, 2020, to the company and the stock exchanges within 7 working days from the end of the financial year. These reports as per the 2020 calendar are required to be filed by April 15, 2020.

It has therefore been decided to extend the due date of filing disclosures, in terms of Regulations 30(1), 30(2) and 31(4) of the SAST Regulations for the financial year ending March 31, 2020 to June 01, 2020. This relaxation has come into effect on and from March 27, 2020.

Tags SEBI

SEBI takes steps to make short selling harder – Press Release 20 March 2020

On 20 March 2020, SEBI issued a press release taking note of the continued volatility in Indian and global stock markets and observed that significant market movements had not yet disrupted settlement cycles in India. SEBI announced a slew of measures which came into effect at the start of trading on 23 March 2020 for a period of 1 month (subject to review at the end of this period).

These changes include revision of market wide position limits for stocks in the futures and options segment, increase in margin for stocks in the futures and options segment, increase in cash market margins for stocks which are not futures/options, revised position limits for equity index derivatives, and flexing of dynamic price bands for futures and options stocks.

Revision of Market Wide Position Limit (MWPL)[1]:

For futures and options stocks (“F&O Stocks”) whose:

(a) average Daily Price High Low variation percentage[2] (during last 5 trading days) was more than or equal to 15%; or,

(b) whose average MWPL utilization percentage (during last 5 trading days) was more than or equal to 40%,

MWPL may be revised to 50% of the existing levels. This re-calculated MWPL shall be used to impose ban periods on fresh positions and not to determined enhanced eligibility criteria for derivative stocks.

If MWPL utilization for any security crosses 95%, derivative contracts will enter a ban period and further trading will be allowed only to decrease positions through offsetting positions[3].

Stock exchanges and clearing corporations have been instructed to put monitoring mechanisms in place and to conduct checks on an intra-day basis. Violations will result in penalties that will range from an amount 10 times higher than the current minimum penalty up to an amount 5 times higher than the current maximum penalty.

Increase in margin rate in Cash Market:

For the stocks mentioned in (1) above, the margin to be maintained in the Cash Market will be increased in a phased manner: 20% (as on 23.03.2020); 30% (from 26.03.2020); and 40% (from 30.03.2020). These will apply for 1 month.

Revised position limits in equity index derivatives:

Mutual Funds, foreign portfolio investors, proprietary trading members and clients shall be subject to the following limits in equity index derivatives:

(a) Short position[4] shall not exceed the notional value of their holding of stocks; and

(b) Long position[5] shall not exceed their holding of treasure bills, cash, government securities and similar instruments.

Additionally, equity index futures contracts and equity index options contracts shall each be capped at INR 500 crores.

Breach of these conditions will require an additional deposit that is twice the margin amount (chargeable on the excess) and stock exchanges and clearing houses shall retain such deposits for 3 months. However, positions that existed prior to the circulars issued by stock exchanges and clearing houses were permitted to continue till their expiry.

This position applies to institutional and proprietary trading members for 1 month from 23 March 2020. For all others, it applies on and from 27 March 2020.

Flexing of dynamic price bands for F&O stocks:

As on date of this press release, F&O stocks are subject to a dynamic price band which relaxes based on certain specified market movement in either direction. For instance, if at least 25 trades occurred involving no less than 5 unique client codes (UCC) on each side of the trade, where each trade is at or above 9.9% of the base price.

To prevent premature relaxation of price bands, SEBI has now imposed a 15-minute cooling off period. After the relevant F&O stock satisfies any requirement specified by a stock exchange to qualify for a relaxation of the price band, no relaxation can occur until the expiry of a mandatory 15-minute cooling-off period.

These measures were taken by SEBI to prevent market distortion. For instance, after the implementation of this press release, speculative short selling has become much harder, given that the changed margin requirements make it expensive, there is now a limit of number of shares that can be traded in the derivatives segment, and there is a sharp increase in penalty for violation of these revised norms.

SEBI’s timely actions, both in easing the compliance burden on listed entities and in acting swiftly to stem the tide of market volatility are laudable and, one expects, will improve our market resilience.

[1] A market-wide position limit is defined, with respect to a specific underlying stock, as the maximum number of open positions allowed across all futures and options contracts of that stock.
[2] This is the percentage of the difference between the highest and lowest trading values of a particular stock on any given trading day.
[3] i.e. the taking of an equivalent but opposite position to reduce the net position to zero.
[4] In layman terms, this is the sale of a stock the investor does not own in the belief that she will buy it in future – this is based on the assumption that the price of the stock is expected to fall in future, therefore they expect to make a profit by selling the stock at a higher price now and buying it a lower price later.
[5] In layman terms, this is the purchase of a security in the hope that it will increase in value.

Tags SEBI

Tag: SEBI

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