Reform drive

The Securities and Exchange Board of India (SEBI) has pushed through some long-pending reforms with far-reaching impact in its recent Board meeting. With the approval of the Gold Exchange (Vault Managers) Regulations, the decks have been cleared for the much-awaited spot gold market in India. The trading in electronic gold receipts, with physical gold as underlying on existing stock exchanges, will bring in greater transparency in price discovery. More important, domestic gold prices will be driven by onshore demand and supply instead of following prices discovered overseas. While larger players such as gold jewellers are likely to dominate trading initially, individuals can also use these platforms if smaller trading denominations are introduced. Making the electronic gold receipts perpetually valid, fungible and interoperable between vault managers makes them more user-friendly. While finer details are awaited, tight regulations of vault managers and ensuring that the assaying is done accurately will be critical to establishing the credibility of the ecosystem. Allowing existing exchanges to create social stock exchanges as a separate segment is yet another milestone for the Indian stock market ecosystem.

The Board’s approval to amend the existing rules for delisting of equity shares following an open offer is also welcome as it helps untangle a rather complicated process created by contradictory rules. While SEBI’s takeover regulations can result in an acquirer holding more than 75 per cent of the shareholding after an open offer, the delisting regulations require that the buyer’s shareholding to be reduced to 75 per cent before delisting. The regulator’s proposal — that the acquirer can cite another price (higher than the open offer price) for delisting, if he proposes to eventually delist the shares — smoothens the process considerably. If the open offer results in the acquirer getting over 90 per cent of the shares, all the sellers will be paid the delisting price. If the delisting threshold is not met, all the sellers shall be paid the open offer price. More time is also being provided to the acquirer, if unsuccessful, to make further attempts at delisting. This clarification is important at this juncture for merger and acquisition deals are likely to increase in the future as businesses consolidate in the aftermath of the pandemic-induced disruption.

The regulator is also allowing more new age tech companies to issue shares with superior voting rights by increasing the networth of promoter group eligible to issue such shares from ₹500 crore to ₹1,000 crore. The approval of Investor Charter and charters for recognised market infrastructure institutions will spell out the rights and responsibilities of these groups, acting as the guide for investors as well as the regulator in the future. Investors will also cheer SEBI’s decision to allow mutual funds to launch silver exchange traded funds, which were hitherto not available. This instrument will allow users to hedge their exposure in the precious metal as well as to invest in it in paperless form.

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