The Securities and Exchange Board of India is discussing the issue of increasing the borrowing limit of a mutual fund from the existing 20 per cent to 40 per cent of the net assets of a scheme for a six-month period. This is to enable them to meet temporary liquidity needs like repurchase, redemptions or payment of interest or dividend.
During the month of October, quite a few smaller houses were in trouble because of high redemption pressures. Lotus Mutual Fund was taken over Religare AEGON, in the first week of November.
This was part of the agenda of a Sebi board meeting held last week. A discussion paper that has been put up on the official website On Monday gives the background and recommendations that have been considered by the members.
Mutual funds faced substantial loss in their assets under management (AUM), during the year. According to Sebi data, AUM of funds has contracted by 20.68 per cent from Rs 5.4 lakh crore to Rs 4.31 lakh crore between August and October-end.
The listing of close-ended schemes was another issue. To strengthen these schemes, it was recommended that such schemes should not hold securities that are longer than the maturity of the schemes. Also, fund houses would be allowed to charge listing fees as a part of their recurring expenses to investors. A circular this effect has already been issued.
The recent liquidity crunch has also adversely impacted the industry. Liquid and debt funds saw a fall in AUM from Rs 3.6 lakh crore to Rs 2.9 lakh crore between August and October-end. While the industry was given a bailout package by the Reserve Bank of India (RBI), Sebi has noted that in two cases a fund borrowed from banks at 39 per cent for a day and 46 per cent for another day. However, since the intervention from the Finance Minister and India Banks’ Association, the rates have stabilised at 11 per cent. A recent survey has also found that 86 per cent of the investors are from urban areas and 14 per cent for rural/other areas.
On stock markets
Sebi may allow companies that are listed on de-recognised regional stock exchanges (RSEs) to seek listing or to provide an exit option to investors.
Also, there is proposal to transfer the investor protection fund (IPF), security deposit of 1 per cent and investor services fund (ISF) available with RSEs whose recognition is withdrawn and/or renewal of the recognition is refused by Sebi.
Further, statutory dues outstanding to Sebi, including the 10 per cent of the listing fee and the annual regulatory fee would be transferred as well.
After de-recognition of the RSEs, the trading members of these exchanges will cease to be trading members and will be liable to be de-registered as stockbrokers. However, trading members must pay Sebi registration fees till the date of de-recognition. The subsidiaries of the de-recognised RSEs may function as any other normal broking entity with a suitable change of name to avoid any representation of past or present affiliation with the stock exchange, says the agenda paper submitted to the board. RSEs themselves will not allowed to use the words “stock exchange” after de-recognition.
Around five regional bourses, including Mangalore, Hyderabad, Rajkot, Magadh and Coimbatore Stock Exchange, have already been derecognised, while 15 bourses have demutualised. Some of these exchanges are not keen to shut shop. For instance, the Calcutta Stock Exchange has tied up with the BSE for offering a trading platform to its members.
In another agenda note, the primary market advisory committee (PMAC), has recommended that the practice of IPO grading may continue.
