SEBI overhauls PMS rules, widens FPI access to commodity derivatives

New business data points to the fact that Market regulator Securities and Exchange Board of India (SEBI) Board on Thursday approved a wide-ranging set of regulatory reforms covering Portfolio Management Services (PMS), foreign portfolio investor (FPI) participation in commodity derivatives, settlement proceedings, accredited market participants, REITs and InvITs, Alternative Investment Funds (AIFs) and market intermediaries.

The decisions follow a series of consultation papers issued by SEBI in recent months on areas including PMS, FPI participation in exchange-traded commodity derivatives, vault managers, accredited market participants and REIT/InvIT fundraising.

PMS rules get comprehensive overhaul

The Board approved new PMS regulations that significantly expand the investment universe available to portfolio managers. PMS can now invest in a wider range of securities, including foreign securities, IPOs and specified unlisted debt, subject to the prescribed conditions.

The framework permits investment in overseas listed equities and debt, as well as overseas mutual funds investing in equities, debt and REITs, subject to applicable foreign exchange rules and client consent.

PMS managers will additionally be permitted to invest up to 10% of a client's assets under management in investment-grade unlisted debt, with the client's consent.

A new route, called the Portfolio Management Services for Investment in Mutual Funds (PRIM), will allow PMS managers to invest in direct plans of mutual fund schemes. The minimum investment ticket size under this route will be Rs 25 lakh.

The overhaul is aimed at updating the PMS framework and widening the investment choices available to professionally managed portfolios. Earlier proposals for the overhaul had included overseas investments, a mutual-fund-only PMS category and investments in to-be-listed securities.

Settlement framework gets formula-based mechanism

SEBI additionally approved changes to its settlement framework. The revised regulations introduce a formula-based approach for determining settlement amounts and widen the circumstances in which settlement proceedings can be accessed.

The new framework additionally provides for a fast-track mechanism for eligible cases and extends the settlement application window from 60 days to 90 days.

Separately, SEBI has approved a 90-day one-time settlement window for specified pending cases under the new settlement regulations. The move comes against the backdrop of the regulator's review of the Settlement Proceedings Regulations, 2018. SEBI had released a consultation paper on the review in August.

FPIs to get access to non-agri commodity derivatives

The Board approved a framework allowing FPIs to participate in non-agricultural commodity derivatives, subject to safeguards around delivery and exit from positions.

The move follows SEBI's August consultation paper on FPI participation in exchange-traded commodity derivatives. The proposal was aimed at widening institutional participation in the domestic commodity derivatives market while putting in place safeguards to avoid delivery-related complications for overseas market participants.

Under the framework, FPIs will be subject to specified requirements to exit or roll over positions ahead of the delivery period.

Accredited investor pool widened

SEBI additionally approved changes to the accredited investor framework. Individuals with at least Rs 5 crore in securities-market assets will be eligible under the revised framework, alongside a manager-led accreditation mechanism.

The framework additionally provides for certain non-residents, including FPIs, to be deemed accredited market participants.

The changes are intended to widen the pool of market participants who can access products and structures meant for accredited market participants. SEBI had issued a consultation paper on reviewing the accredited investor framework in August.

REITs, InvITs get foreign fundraising route

The Board approved a framework enabling Depository Receipts (DRs) against units of REITs and InvITs. The measure provides these investment vehicles with a route to access foreign capital through overseas markets.

SEBI had issued a consultation paper in August on allowing DRs against units of REITs and publicly listed InvITs.

The Board additionally approved changes to voting thresholds for certain REIT and InvIT decisions. The approval threshold will be based on 75% of votes cast, rather than 75% of all outstanding units.

The framework additionally provides for complete exit for dissenting unitholders in specified situations involving a change in sponsor. Vault Manager rules expanded

SEBI expanded the scope of the Vault Manager framework beyond Electronic Gold Receipts (EGRs) to cover bullion underlying ETFs and bullion derivatives.

At the same time, the minimum net worth requirement for Vault Managers has been boosted from Rs 50 crore to Rs 75 crore.

SEBI had floated a consultation paper in August proposing an expansion of the scope of the Vault Managers Regulations, 2021.

Common advertising code and research market observer rules

The Board approved a Common Advertisement Code for SEBI-regulated entities. The framework provides for greater uniformity in advertising requirements and permits regulated entities to use celebrities for brand-level promotions, subject to safeguards.

SEBI has additionally relaxed call-recording requirements for research market watchers dealing with institutional clients.

AIF, debt and certification reforms

The Board approved changes to extend specified investor-protection provisions to all forms of AIFs, rather than limiting them to AIFs structured as trusts.

SEBI additionally removed the requirement for mandatory retrospective stock-exchange debut of outstanding unlisted non-convertible debentures (NCDs) for first-time debt issuers.

In another ease-of-doing-business measure, certification requirements for market professionals have been relaxed, with specified courses allowed to count towards certification requirements.

Fourth settlement scheme for illiquid stock options

SEBI additionally announced a fourth settlement scheme for eligible illiquid stock-options cases pending before adjudicating authorities, the Securities Appellate Tribunal (SAT) or courts.

The scheme is aimed at providing an additional settlement route for eligible legacy matters and reducing the number of such cases pending across different stages of proceedings.

Moneycontrol had noted on Wednesday that the SEBI board was anticipated to take up these key proposals at its board meeting.