Coming out with strict steps to protect investor interest, Sebi today decided to bar wilful defaulters from raising public money as well as holding board positions, besides making it must for listed firms to disclose impact of audit qualifications in a separate document.
To curb malpractices in the securities and commodities markets, the watchdog will boost surveillance mechanism and enhance the supervision of brokers and other intermediaries.
The issues pertaining to control at the time of acquisition of listed entities and mutual funds' exposure to distressed debt securities were also discussed at the Sebi's board meeting, which went on for more than an hour here.
The board approved the regulator's budget for 2016-17 and also discussed the plan for action for the same period.
Meanwhile, Sebi has also given its in-principle approval for the listing of BSE.
Cracking its whip on 'wilful loan defaulters', Sebi has decided to ban them from raising public funds through stocks and bonds as also from taking board positions at listed companies, a move that would disqualify the beleaguered Vijay Mallya from various posts.
In addition, such defaulters will not be allowed to set up market intermediaries such as mutual funds and brokerage firms and will be restrained from taking control of any other listed company.
"If somebody is proved by RBI or orders that he is a wilful defaulter, then it is very risky to allow that person, or company to raise money from retail persons in the market," Sebi Chairman U K Sinha told reporters after the board meeting.
"They will not be allowed to raise money from the market. They will also be debarred from taking any position in a listed company. Such persons will also be declared not fit and proper under various intermediary regulations."
The new rules on restraining wilful defaulters will come into effect after they get notified. "After the notification, all the persons would stand disqualified from all positions at listed companies," he noted.
For more clarity on change of control in mergers and acquisitions, the regulator will launch a public consultation for defining 'control' and proposed fixing 25 per cent voting rights as a threshold.
Addressing the board, Finance Minister Arun Jaitley asked the regulator to be alert on market supervision and take measures to expand investor base and deepen the commodity derivatives segment.
This was the first Sebi board meeting after Sinha got another extension at the helm.
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Amid criticism that the regulator takes time in deciding on cases, Sinha said it has now set a target of completing enforcement actions in a matter within two years that would include the time taken for investigation.
With regard to wilful defaulters, Sinha said there is only one condition where wilful defaulters would be allowed to make a counter offer.
"Imagine a company and there is a wilful defaulter there. Somebody is making an open offer to acquire that company, then we have said that this wilful defaulter will be allowed to make an open offer. The regulations should not lead to distress sale of that particular company. Otherwise it will lead to distress sale which will also affect other investors," he said.
In another significant move, listed entities be required to disclose the cumulative impact of all the audit qualifications on relevant financial items in a separate form called 'Statement on Impact of Audit Qualifications' instead of the present form.
To deepen the commodity derivatives market, Sebi would introduce new products and allow more participants in the commodity derivatives market, a move which could pave the way for entry of banks and FPIs into the segment.
Sebi began regulating the commodity derivatives market last year.
The commodities market has been demanding for long the introduction of options to deepen the market. Besides, the industry has also been asking for allowing participation by banks and Foreign Portfolio Investors (FPIs), among others.
Sebi has also identified various focus areas for the next fiscal that includes enhanced surveillance mechanism, increased supervision of market intermediaries and encourage ease of doing business through system-driven disclosures.
Among others, Sebi would encourage delisting of suspended companies.
Strengthening measures to curb malpractices and protect interest of investors, Sebi will enhance supervision of stock brokers and other intermediaries, raise standards for credit rating agencies and strengthen the surveillance mechanism.
Another focus in the next fiscal will be to encourage "use of technology to streamline know your customer (KYC) procedure and augment the reach and depth of the market, especially for mutual funds".
