Sebi defers key market reforms due to disruption caused by pandemic

The Securities and Exchange Board of India (Sebi) has deferred the implementation of key market reforms on account of the disruption caused by the pandemic.

The areas in which Sebi extended the deadlines are implementation of the stewardship code for mutual funds (MFs), shortening the initial public offering (IPO) timelines, and overhaul of regulations governing portfolio management services (PMS) and alternative investment funds (AIFs).

Sebi also provided relaxations in the know-your-client (KYC) formalities for foreign portfolio investors (FPI). The so-called stewardship code, an institutional investor’s guide to vote on resolutions floated by listed companies, will now come into effect from July 1 instead of April 1. Under this, MFs and AIFs are required to formalise a comprehensive policy on discharge of their stewardship responsibilities, which have to be disclosed publicly and reviewed periodically.

The regulation was aimed at increasing voting participation and improving corporate governance standards. Both the MF and AIF industry bodies had written to Sebi, seeking extension of the deadline.

Meanwhile, Sebi’s plan to shorten the time taken between closing of an IPO and listing of a security to three days (T+3), from six at present, is likely to be delayed.

Sebi has put on hold the final phase of implementation. “Taking into account that introducing any new changes under the prevailing circumstances — where staff at the stakeholders are sparsely populated — may not be workable, it has been decided to continue with the current phase-II of till further notice,” Sebi has said.

Industry players said Sebi could consider implementation of the third phase once the IPO market revives, which will be possible only after the pandemic ends.

The regulator has also provided a huge relief to the PMS industry, deferring the recent overhaul of regulations by two months. In February, Sebi had notified big changes for the industry by doubling the minimum investment size to Rs 50 lakh, hiking the net worth from Rs 2 crore to Rs 5 crore and capping the fees charged to manage money.

The new framework had coincided with the crash in the market, hitting the industry hard. AIF and venture capital funds (VCFs), too, have given two more months to make regulatory filings for March and April.

As regards FPIs, Sebi has said they can register without providing original and certified documents, provided they send the scanned versions to their custodians. The regulator has said this is a temporary relaxation and FPIs will have to submit their original documents before June 30, or face suspension. Sebi has directed the custodians to conduct proper due diligence.