SEBI Introduces New Regulations To Enhance Investor Protection
SEBI Introduces New Regulations To Enhance Investor Protection
These will improve transparency and promote investor confidence in the Indian capital market
The Securities and Exchange Board of India (SEBI) has announced new regulations to enhance investor protection and market integrity.
The changes include stricter norms for SME IPOs, relaxed ESG reporting requirements, simplified debt listing rules, and enhanced surveillance of trading platforms. The key rules include:
1. Stricter rules for SME IPOS
It is mandatory for companies planning to tap the SME IPO market to show operating profits of Rs.1 crore in at least two of the last three financial years. Promoters and major stakeholders selling under the OFS will be capped up to 50 percent of their holdings during the IPOS.
The regulator has reigned in on the misuse of IPO proceeds by approving funds that cannot be used for repaying loans from promoters, directors, or related parties.
The allocation methodology for non-institutional investors (NIIs) in SME IPOs will be aligned with the methodology used in mainboard IPOS.
2) Review of merchant banker regulations
Merchant bankers, other than banks, public financial institutions and their subsidiaries will undertake only permitted activities. The bankers can operate other regulated activities as a separate business unit after registering with the respective regulatory authority.
Merchant bankers will have to maintain a liquid net worth of at least 25 percent of the minimum net worth requirement, always and an underwriting limit prescribed as 20 times of liquid net worth.
3) Relaxation in ESG reporting
Norms related to ESG reporting where companies have more time to comply with ESG reporting, have been relaxed. Mandatory reporting of value chain data has been deferred by one year to FY 2026. Until then, it will remain voluntary.
4) Regulated entities responsible for using AI
Rules related to artificial intelligence (AI) have been tweaked by assigning the responsibility of using the Al tools to market infrastructure institutions, registered intermediaries and SEBI-regulated entities. These entities, including brokers and AMCs, will be responsible for the privacy and security of stakeholders' data and the output arising from the tool’s usage.
5) Simplified debt listing rules
The norms for listing debt securities have been eased, making it easier and faster for companies to raise funds through bonds. The measures include mandating listed or to be listed debt instruments issuance and its transfer in demat form.
6) Strengthening corporate governance
Stricter rules have been introduced to enhance corporate governance standards. Companies must disclose details of related-party transactions and funds usage, providing transparency to investors.
Additionally, SEBI marked stricter rules for the SME market, including financial stability before IPOs.
7) Amendment to mutual funds norms
Amendments to rules have been introduced, specifying timelines for deployment of funds collected by mutual funds in new fund offers (NFOs). The purpose is to provide a timeline within which the fund manager must deploy the funds garnered in an NFO as per the scheme’s required asset allocation.
The new framework will encourage AMCs to collect only as many funds in NFOs as can be deployed in a reasonable time, since in the open-ended funds’ investors always have the option to enter the scheme later at the prevailing NAV. It provides an option to investors to exit the scheme without exit load in case the fund manager does not deploy the fund within the timeline.
8) Investor protection for REITs and InvITs
The reforms strengthen investor protection for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). These include better disclosures and mechanisms for safeguarding investor money.
9) Regulations for startups
Eligibility norms for startups listing on the innovators’ growth platform (IGP) have been eased. They need only 25 percent of pre-issue capital to be held by qualified investors to list and raise funds.
10) Alternative Investment Funds (AIFs)
AIFs must provide detailed quarterly disclosures on their investments, valuations, and performance, helping investors track their money effectively.
11) Enhanced surveillance of trading platforms
To prevent market manipulation, SEBI has initiated stricter surveillance mechanisms for trading platforms. This includes real-time monitoring of suspicious trades and stronger penalties for entities found violating market norms.
