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The Securities and Exchange Board of India (Sebi) is working on an ambitious plan to settle secondary market trades on a real-time basis. The proposal comes less than a year after the trade settlement cycle was shortened from T+2 (T denotes trade day) to T+1. The markets regulator is also working on an overhaul of the delisting regulations in a bid to give listed firms a fair shot at going private, if they intend to.
It is also reviewing the framework of “trading plan”, which is used by company insiders to deal in the shares of their firms as required under the Prohibition of Insider Trading (PIT) Regulations.
Speaking at a press conference here on Monday, Madhabi Puri Buch, chairperson, Sebi, said: “While working an Asba-like payment system for the secondary markets, we realised that instantaneous settlement of trades is possible. Just like T+1, this will be a global first for India.”
The Sebi chief said the changes to the trading architecture, such as Asba (applications supported by blocked amount) for the primary and secondary markets, shorter T+1 settlement cycle for equities, and T+3 for IPOs and mutual fund (MF) transactions will result in savings of Rs. 3,500 crore per year for investors.
“As the ecosystem develops further capability, this number will go up,” she said.
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The instantaneous settlement mechanism could only be extended to delivery-based trades and for a select group of investors. It could be a separate trading segment, Buch hinted. She said the implementation could spill over to the next financial year.
Sebi is also considering making changes to the delisting regulations, following representations by India Inc against the reverse book building (RBB) framework. Under this framework, promoters have to acquire at least 90 per cent of total shareholding for the delisting bid to be successful. Promoters have said the RBB framework is too stringent and prone to misuse.
“Some operators corner shares of (companies that propose to delist). In a concerted effort, they take their shareholding past the 10 per cent mark. And then the bid to cross the 90 per cent limit is jacked up to a very high level. This makes the (delisting bid) unsustainable,” said Puri Buch. “That’s the problem statement that the industry has articulated. So, (a Sebi) committee has now deliberated on how to solve this problem.”
The Sebi chief said there is a proposal to allow fixed-price delisting. The final contours of the new framework are being deliberated by the Sebi-constituted committee under the leadership of Keki Mistry, former CEO of the erstwhile HDFC. A discussion paper on new delisting regulations could be released before the end of this calendar year.
The markets regulator is also looking into the framework of “trading plan”. At present, an insider or a key managerial personnel can formulate a trading plan six months in advance for regular trades -- a move that helps such people to trade without compromising the PIT regulations.
Ananth Narayan, whole-time member, Sebi, said the current process of trading plan is onerous and the regulator is taking a fresh approach to provide flexibility of a price range within which such trading plan can be implemented. A consultation paper on this will be floated next month, he added.
To smoothen the implementation process of new and existing regulations, Sebi plans to involve industry bodies, such as Amfi, CII, Ficci, and Assocham for standardisation of the process. Terming this an “architectural shift in Sebi’s approach”, Puri Buch cited the example of the new rule around responding to market rumours reported in mainstream media. The Sebi chief said the regulator has received feedback that companies will have to spend hundreds of crores to install systems for tracking news reports.
She cleared that it isn’t Sebi’s intent to make companies incur high costs in order to comply with this new regulation. On Friday, Sebi sent letters to industry bodies to work out a framework for using media tracking facilities and suggest a mechanism for adhering to changes in the disclosure requirements.
Sebi chief also announced that the Rs. 30,000-crore backstop facility for debt mutual funds and limited purpose clearing corporation will be launched on July 28 by Finance Minister Nirmala Sitharaman in Mumbai.
