A regulatory framework for index service providers such as S&P Dow Jones Index Services, greater clarity for Mergers & Acquisition deals, more transparency in algo trading and distribution of cash benefits to investors through depositories are part of the agenda of the next SEBI board meeting scheduled for March 13.
This will be the first board meeting after U K Sinha’s term as the Chairman of SEBI was extended by a year.
One of the key issues which SEBI is expected to take up is providing clarity on defining ‘control’ of a company aimed at bringing greater regulatory clarity for merger and acquisition (M&A) deals. Under existing rules, the definition of ‘control’ is based on certain defined principles rather than on rules. As a result there have been instances where there are various opinion leading to different assessments of ‘control’ over a listed company, as was seen in the case of Jet-Etihad deal.
Sebi is looking to define ‘bright lines’ identifying the change of control in such transactions. A bright-line rule is applied to remove ambiguity and resolve contentious issues. Sebi has received representations from investors seeking clarity on this.
To mitigate concerns of misuse of information associated with reconstitution of indices besides providing for greater level of disclosure and transparency regarding stocks moving in and out of indices, SEBI is likely to outline a broad framework to be followed by index providers.
The broader equity indices traded at Indian stock exchanges are owned or managed by separate legal entities. This includes S&P Dow Jones Index Services and India Index Services & Products Limited, a subsidiary of NSE. Currently, these entities do not come under the purview of any specific regulation. Therefore calculation, maintenance and management of Indices are carried out at the discretion of Index providers and no regulatory oversight is presently available. Sebi is looking to bring a framework that prevents conflict of interest and a system for whistleblowers.
Another issue likely to be taken up is allowing depositories to distribute all securities markets related cash benefits. This will make it faster for investors to receive benefits such as dividend, interest and redemption proceeds through depositories. SEBI had initiated consultation process on setting up a mechanism where in all securities related benefits can be distributed at a single point. Currently cash benefits are handled by registrars and transfer agents. Depositories handle only non-cash benefits like bonus and rights shares.
The impact of market structure and technology (algo trading) besides the need for transparency, and competition while framing conduct regulations is expected to be discussed. Recommendations of the Nayana Murthy committee on Alternative Investment Funds are also pending discussion.
SEBI is also likely to finalise its annual budget for the next fiscal during the board meeting. Funds are required for enhancement of surveillance capabilities and enhancing skills of its employees through training programmes besides the progress of works at the National Institute of Securities Market campus at Patalganga.