SEBI relaxes a number of regulations, including easier delisting for PSUs

Mumbai, June 19: The Securities and Exchange Board of India (SEBI) approved a comprehensive set of regulatory reforms on Wednesday aimed at enhancing ease of doing business, easing the voluntary delisting process for select public sector undertakings (PSUs), and providing relief to startup founders ahead of initial public offerings (IPOs).

This was the second board meeting chaired by Tuhin Kanta Pandey since assuming the role of SEBI Chairperson.

A Detailed Look At The Key Reforms

Relief for Startup Founders On ESOP Rules

• Previous Rule: Promoters were prohibited from holding share-based benefits, including Employee Stock Options (ESOPs), at the time of filing the Draft Red Herring Prospectus (DRHP) for an initial public offering (IPO). This often required them to liquidate such benefits.
• New Rule: Startup founders will now be allowed to retain or exercise ESOPs even after their company lists, provided these ESOPs were granted at least one year before the DRHP filing.

This move supports startups, especially those undergoing “reverse flipping” (re-incorporating in India from abroad), by allowing founders to retain their equity incentives and aligning their long-term interests with the company’s growth post-listing.

Simplified Framework For FPIs Investing in G-Secs

• New Rule: Due to growing foreign interest in Indian government securities (G-Secs), SEBI has approved simplified compliance requirements for Foreign Portfolio Investors (FPIs) that invest exclusively in G-Secs.

The new measures align the Know Your Customer (KYC) review periodicity with Reserve Bank of India (RBI) norms, thereby reducing the compliance burden on such Foreign Portfolio Investors (FPIs). The changes aim to attract more long-term overseas bond investors.

Eased Delisting Norms For PSUs

SEBI cleared major relaxations to facilitate the voluntary delisting of certain state-owned enterprises. The key amendments include:

• Easing the two-thirds public shareholder approval requirement for delisting.
• Revising the methodology for floor price computation, which currently considers factors like 60-day average price and peak prices in the preceding 26 weeks.

Pandey noted that five PSUs outside the banking and financial services sectors, where the government owns over 90 per cent, are likely to benefit. He added that past delisting efforts had faced challenges due to the financial performance of these companies.

Co-Investment Norms Relaxed For AIFs

• New Rule: Category I and II Alternative Investment Funds (AIFs) are now permitted to offer co-investment opportunities within their fund structures, typically through a separate co-investment vehicle (CIV) scheme.
• Accredited Investors: Angel investors will now be designated as “Accredited Investors,” providing them with greater flexibility in investing by exempting them from certain retail investor protection rules.

Settlement Scheme for NSEL Brokers

SEBI also decided to launch a one-time settlement scheme for brokers who traded on the now-defunct National Spot Exchange (NSEL) and are facing enforcement actions. The settlement terms will include both monetary and non-monetary components, offering clarity to affected entities.

Other Measures Approved

A total of 19 proposals were cleared during the meeting. Other key decisions include:

• Regulatory easing for participants in the Social Stock Exchange, real estate investment trusts (REITs), infrastructure investment trusts (InvITs), and merchant bankers.
• Broader recognition of entities eligible to list as not-for-profit organisations, aiming to improve fundraising outcomes.
• Approval for investment advisors and research analysts to comply with deposit mandates using liquid mutual funds and overnight funds, in addition to traditional bank fixed deposits.

On NSE’s IPO and Clearing Corporation Structure

SEBI Chairman Tuhin Kanta Pandey clarified that SEBI has no objections to the current structure where a clearing corporation operates as a subsidiary of an exchange (like NSE Clearing Ltd. as a subsidiary of NSE). The previous proposal for structural separation has been put on hold due to concerns about its feasibility.

However, he emphasised the need for more transparency and unbundling of trading charges, advocating for clearer allocation of fees between the exchange and the clearing corporation to avoid opacity.

SEBI’s Focus On Transparency

These wide-ranging reforms, totalling 19 proposals, cleared in the meeting underscore SEBI’s commitment to enhancing transparency, fostering operational flexibility, and reducing regulatory friction across various segments of the capital markets. The new measures are expected to facilitate deeper market participation, encourage more initial public offerings (IPOs) from startups, and provide smoother exit avenues for the government in select public sector undertakings (PSUs), contributing to a more robust and dynamic Indian investment landscape.

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