Mumbai: Relaxing the regulatory framework for foreign portfolio investors (FPIs), the markets regulator Sebi on Wednesday simplified KYC requirements for them by doing away with the broad-based eligibility criteria for FPIs, classifying them into two categories instead of three.
This apart, in order to deter insider trading, the Sebi announced a new mechanism to reward informants with up to Rs 1 crore cash for any credible inside information through a specially set up hotline.
The Sebi board also amended regulations concerning credit rating agencies.
Proposing the new regulations for FPIs after the board meeting here, Sebi Chairman Ajay Tyagi said the registration for the multiple investment manager structure would be simplified. It said central banks of other countries would now be eligible to be FPIs. Besides, FPIs would be permitted to carry out off-market transfer of unlisted, illiquid securities.
The Securities and Exchange Board of India also decided to allow offshore funds of Indian mutual funds (MFs) to invest as FPIs.
Tyagi said the regulator is examining the possibility of allowing MFs to join inter-creditor arrangements.
The regulator also said entities established in the International Financial Services Centre (IFSC) would be deemed to have met the jurisdiction criteria for FPIs. This is expected to be a big booster for the financial centre in the GIFT City.
At Wednesday’s meeting, the Sebi's board approved a detailed set of rules for the new 'Informant Mechanism' under its Prohibition of Insider Trading (PIT) Regulations and also proposed a possible amnesty or settlement for minor wrongdoings in return for cooperation in the probe.
However, the reward would only be available to individuals and corporates, and professionals like auditors will not be able to use this route as they are duty-bound to report any wrongdoing.
The new mechanism has been prepared after taking into account the feedback Sebi received on a public discussion paper floated in June.
Under the proposed amendment to Sebi's PIT Regulations, an informant would need to submit a Voluntary Information Disclosure Form (VIDF) detailing credible, complete and original information related to an act of insider trading, including communication of unpublished price-sensitive information or trading in violation of rules that has occurred, is occurring or is about to occur.
It would be mandatory to disclose the source of information and attach an undertaking that it has not been sourced from a person employed with the Sebi or any related regulator.
The Sebi would establish an Office of Informant Protection (OIP), which would be responsible for receipt, registration and processing of VIDF.
The informant would be given a reward if Sebi is able to disgorge at least Rs 1 crore of ill-gotten gains from insider trading on the basis of the information. The reward would be 10 per cent of the money collected, subject to a maximum amount of Rs 1 crore.
While an interim reward of up to Rs 10 lakh can be given at the time of Sebi's final disgorgement order, the rest would be given after the regulator has disgorged at least twice the amount of the final reward.
Under the amnesty clause, Sebi would take into account the cooperation rendered by an informant in deciding any enforcement action or settlement application filed by him or her.
Amid concerns over banks citing ‘client confidentiality’ to resist sharing of information on delayed loan repayments and possible defaults by their borrowers, the regulator would make it mandatory for companies to provide these details to credit rating agencies.
Undecided on 35 per cent holding
Sebi Chairman Ajay Tyagi said various issues need to be examined before deciding on mandating 35 per cent minimum public shareholding in listed companies, as proposed in the Union Budget.
"There are certain issues that need to be further examined. We will need to look at global regulations whether it is mandated beyond 25 per cent anywhere. What is the right level to be mandated... What will be the short-term and long-term implications for the companies and for the market," he said, adding, "45 per cent of listed PSUs as of now don't even meet the 25 per cent requirement and they have been given time till August 2020 to comply.”