SEBI Board Meeting: Regulatory Changes and Chairperson Allegations

The Securities and Exchange Board of India (SEBI) is preparing for a pivotal board meeting scheduled for Monday. This session is especially noteworthy as it is the first since recent allegations against Chairperson Madhabi Puri Buch surfaced. The financial community is keenly anticipating the outcomes, which could significantly impact market regulations and practices.

Controversy Surrounding SEBI Chairperson Madhabi Buch

Recently, the U.S. short-seller Hindenburg Research levied serious accusations against SEBI Chairperson Madhabi Puri Buch and her spouse, involving investments in offshore funds managed by Vinod Adani, brother of Gautam Adani of the Adani Group.

Further complicating matters, the Congress party has accused Buch of engaging in trading activities and selling employee stock options from her tenure at ICICI Bank while she was employed at SEBI. Additional allegations include consultancy services being availed from Agora Advisory by prominent companies such as Mahindra and Mahindra and ICICI during Buch's time as a whole-time director at SEBI.

Both Buch and SEBI have denied these allegations, though an official statement has yet to be issued.

Key Regulatory Changes and Proposals on the Agenda

The regulatory board is expected to address various consultation papers that are overdue for review. Among the most critical items is the proposal to revise the framework for index derivatives, aimed at curbing speculative trading by extending expiry periods and increasing minimum contract values.

Proposed Reforms in Index Derivatives Trading

A significant reform in the pipeline involves changes to the trading of index derivatives. SEBI's proposals include:

limiting expiries to weekly;
increasing the minimum contract value to initially Rs 15-20 lakh; and
later to Rs 20-30 lakh to deter retail investors, and rationalizing strike prices.

This overhaul is in response to concerns expressed by both Finance Minister Nirmala Sitharaman and SEBI Chief Madhabi Buch about the speculative nature of futures and options trading.

Establishing a Performance Validation Agency

Another major discussion point is the creation of a performance validation agency. This agency would verify the performance claims of financial intermediaries, such as research analysts and algorithm providers. The aim is to enhance the reliability and transparency of financial advisory services, differentiating regulated entities from unregulated market influencers.

SEBI also plans to simplify compliance measures for Investment Advisers and Research Analysts, potentially easing educational and net worth requirements and allowing dual registrations.

Other Possible Reforms

Simplified Disclosure for FPIs: The regulator may ease the process for foreign portfolio investors (FPIs) to comply with the August 2023 disclosure requirements. While initial requirements demanded detailed disclosures about ownership and control, new guidelines might only require FPIs to identify as land-bordering country (LBC) or non-LBC based on the majority ownership location, unless further specifics are needed for classification.
Introduction of a New Asset Class: A new investment option that sits between portfolio management services and mutual funds is being considered to cater to investors ready to assume higher risks with larger investable amounts.
Regulatory Updates for Mutual Funds: Mutual funds might see two major updates: the introduction of 'Mutual Fund Lite' regulations for simpler compliance in passively managed funds, and a new requirement to disclose risk-adjusted returns in fund documents.
Broader Definition of Insider Trading: The definition of a 'connected person' may be expanded under insider trading regulations to include relatives, those sharing a household, and Hindu undivided families among others.
Streamlined Enforcement Procedures: The reintroduction of summary proceedings is proposed to swiftly address clear violations by intermediaries, thus safeguarding investor interests.

Conclusion

As SEBI convenes to address these critical issues, the outcomes of this board meeting are likely to have far-reaching implications for various market players and intermediaries. The financial community and stakeholders will be closely monitoring the developments, eager to see how these proposed changes will shape the future of India's securities market.

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