Exchangeable bonds to top Sebi meet agenda

The Securities and Exchange Board of India (Sebi) is likely to frame the guidelines on exchangeable bonds and issuance of securities receipts as tradable instruments, in its meet scheduled tomorrow.

The bonds could either be converted into shares after three years or redeemed as cash after five years from the date of issuance. The finance ministry discussed the issue with the Sebi and the Reserve Bank of India last week.

There may not be any limit on the issuance of such products. The instruments could be issued under the automatic approval route, as in the case of external commercial borrowings. Exchangeable bonds are similar to foreign currency convertible bonds (FCCBs), except for the fact that they can be converted into shares of any other group company. The FCCBs, on the other hand, are convertible into the shares of the issuing company alone.

The meet is also likely to deliberate on the proposed investor protection fund. In this year's Budget, the government had suggested the creation of a separate investor protection fund under the market regulator. This would be over and above the investor education and protection fund managed by the ministry of company affairs.

According to the proposal, all the fees and penalties collected from market participants would go to the Sebi-managed fund. The collections currently go to the Consolidated Fund of India. As this is not earmarked as Sebi's contribution, the regulator receives a grant irrespective of the amount deposited in the Consolidated Fund. This hampers the cause of investor development, according to sources. An expert group set up under the chairmanship of Justice M H Kania (former Chief Justice of India) had suggested a separate Investor Protection Fund under the Sebi Act, on the lines of the subscriber education and protection fund under Pension Fund Regulatory and Development Authority (PFRDA).

The regulation regarding investment advisors is also likely to be taken up at the regulatory meet.