New asset class may take wing; decision likely at Sebi meeting on Sep 30

Board meeting on Sep 30, first since conflict of interest allegations against chairperson

The Securities and Exchange Board of India (Sebi) may clear the decks for the launch of a new asset class—aimed at bridging the gap between mutual funds (MFs) and portfolio management services (PMS)—along with the MF Lite framework for passive fund houses.

The decision is likely at Sebi’s upcoming board meeting on September 30, sources said.

The meeting will be closely watched, as it is the first since Congress and short-seller Hindenburg Research alleged conflict of interest against Sebi chairperson Madhabi Puri Buch.

The Sebi chair was further caught in the storm amid discontent raised by the employees, who have also submitted a list of demands to the finance ministry.

Typically, the Sebi board—which has representatives from the government and the Reserve Bank of India (RBI)—meets once every quarter to clear securities market-related reforms.

 The new product category will cater to investors willing to take riskier bets. The minimum ticket size for such investments will be Rs 10 lakh — lower than the minimum threshold of Rs 50 lakh specified for PMS.

However, clear differentiation and upfront disclosures may be mandated for the new category to avoid confusion for investors.

Emailed queries to Sebi remained unanswered till the time of going to press.

Existing MF players will be allowed to launch the new asset class. Sources said in anticipation of the new norms, several players have already started putting in place a team and zeroed in on the strategies they plan to offer.

 “Several large MF houses are already on the hunt for investment managers and team members for the new asset class as it will require a specialised set of teams for such strategies,” said an industry player.

Meanwhile, the relaxation in rules under MF Lite ranges from lower net worth and profitability criteria for sponsors and AMCs to reduced reporting requirements.

The board may also discuss other key proposals such as stricter trading norms for the futures and options (F&O) segment.

In its latest analysis, the market regulator pointed out that around 93 per cent of retail investors lost money to the tune of Rs 1.8 trillion in the derivatives segment in the past three years.

Foreign portfolio investors (FPIs) and prop traders, meanwhile, booked gross trading profits of Rs 28,000 crore and Rs 33,000 crore, respectively, in FY24.

In a consultation paper floated in July, Sebi had proposed seven measures to curb speculative activity in the F&O segment.

These measures included a hike in the minimum value of derivatives contracts to between Rs 15 lakh and Rs 20 lakh initially and up to Rs 30 lakh after six months.

Currently, the minimum value of a derivatives contract is around Rs 5 lakh. The higher contract size is aimed at increasing the entry barrier for small investors.

Sebi has also proposed significant tightening on the options side.

This includes the upfront collection of option premiums from buyers to reduce leverage.

The contracts based on fewer strike prices would reduce the number of deep-out-of-the-money contracts — which are cheaper and entice small investors.

During the last board meeting in June, Sebi had approved changes in the eligibility criteria for stock selection under the F&O segment.

 Sebi had also undertaken a review of the norms on research analysts and registered investment advisors (RIAs) and proposed an overhaul of the regulations—including measures to ease compliance and onboard more people as RIAs. Sources said that the board may also take up these proposals in the upcoming meeting.

Among a slew of other measures under the ease of doing business initiatives, Sebi may simplify norms on disclosure and listing obligations.

A 21-member committee chaired by SK Mohanty, former whole-time member of Sebi, submitted its recommendations on the same, and the proposals may be taken up by the board next week.

Sources said the granular disclosure norms on ultimate beneficial ownership applicable to foreign portfolio investors may also be extended to p-notes (participatory notes or offshore derivative instruments) and those FPIs with segregated portfolios.

Board to discuss

> New asset class to bridge gap between MFs and PMS for high risk takers

> MF Lite norms for passive fund houses

> Measures to curb retail activity in the index derivatives

> Overhaul of investment advisor and research analyst norms

> Review of listing regulations to ease compliance burden