Regulatory updates

Securitisation⁵ Securitisation is a process in which assets/ receivables are pooled together and then re-packaged into pass through instruments. The cash flow from these underlying assets/ receivables is passed on to the purchasers/ investors in the pass-through instruments. in India is regulated and governed by SEBI via the SDI Regulations and by RBI via the provisions of Master Direction-RBI (Securitisation of Standard Assets) Directions, 2021 – for standard assets (RBI SSA Directions). Given the passage of time since the SDI Regulations were formulated and the availability of revised directions issued by RBI that can serve as a benchmark, a need was felt to update the SDI Regulations.

Various areas of proposed changes in the consultation paper are as follows:

1. Amendments relating to form and nature of SDIs, ticket size, meaning of debt etc.
2. Amendments relating to structural elements of the securitisation transaction.
3. Amendments relating to trustees
4. Amendments relating to disclosure requirements.
5. Some clarificatory changes
6. Revisions to legislative references
7. Amendments to SEBI LODR

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The SEBI consultation paper issued on November 9, 2024, proposes a review of the definition of UPSI under the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations) to align the definition of UPSI with events listed in Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations).

The events listed in Para A and B of Part A of Schedule III of LODR Regulations have been evaluated by the working group⁶ A working group was constituted to review the definition of UPSI in light of Para A and Para B of Part A of Schedule III read with Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. in order to identify those events and conditions that may potentially be price sensitive and have been recommended to be included in the definition of UPSI.

The comments on this consultation paper closed on 30 November 2024.

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The SEBI consultation paper on the review of the Small and Medium Enterprise (SME) segment framework under SEBI (Issue of Capital and Disclosure Requirement) Regulations, 2018, (ICDR Regulations) and the applicability of corporate governance provisions under the LODR Regulations, aims to strengthen pre-listing and post-listing provisions for SMEs.

Some of the key changes proposed are:

1. IPO process: Increase the minimum application size from INR1 lakh to INR2 lakh or INR4 lakh to protect the interest of smaller investors and to attract investors with greater risk taking appetite to enhance the overall credibility of SME segment.
2. Allocation for Non-Institutional Investors (NIIs): Align SME IPO allocation with Main Board IPOs by introducing sub-categories in the NII category and a draw of lots for oversubscription.
3. Allotment process: Increase the minimum number of allottees from 50 to 200 in an IPO to ensure broader investor participation.
4. Offer for sale (OFS): Restrict OFS to 20% of the issue size to ensure funds are used for growth.
5. Monitoring of issue proceeds: Lower the threshold triggering the appointment of a monitoring agency from INR100 crore to INR20 crore and mandate monitoring incase of specific objects like funding subsidiaries or repay loans or an acquisition.
6. Lock-in period: Increase the lock-in period for promoters' contributions to 5 years and phase the release of excess holdings to ensure promoters continue to have some skin in the game until company is on the SME exchange.
7. General corporate purposes (GCP): Limit GCP to 10% instead of 25% of the issue size or INR10 crore, whichever is lower.
8. Eligibility Criteria for SME IPOs: Introduce a 2-year cooling-off period for companies formed from LLPs or partnerships and for those with a change in promoters before filing the draft offer document. Require a minimum issue size of INR10 crore and operating profit of INR3 crore for at least two out of three preceding financial years.
9. Migration to Main Board: Allow SMEs to raise funds without migrating to the Main Board if they comply with Main Board corporate governance and disclosure norms when their post-issue paid-up capital exceeds INR25 crore.

Corporate governance: Extend LODR provisions pertaining to related party transactions, disclosure of board composition and meetings and periodic filings to SME listed entities.

Comments on this paper closed on 4 December 2024.

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This paper aims to seek views from public on the need for channelizing capital from Angel investor pools through a regulated structure. If the need for a regulatory environment for Angel Funds is acknowledged, paper also aims to seek views on proposals to streamline regulatory framework for Angel Funds to:

• Rationalize their fundraising processes,
• Strengthen disclosure and governance requirements, and
• Provide operational clarity and investment flexibility.

These proposals aim to, inter-alia, restrict Angel Funds to investors with commensurate risk appetite and ability to evaluate investment proposals, while also enhancing the ease of doing business in this space

Consultation on this paper closed on 28 November 2024

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