The SEBI meet on April 26 is will be the first meeting of the capital market regulator after Mr. Ajay Tyagi has taken charge. There is apparently, a power packed agenda of critical items for discussion. Some of the agenda items are likely to have long range implications for the Indian capital markets and are likely to be initiated in the April 26th meeting of the regulator. Here are some of the key agenda items that could have long range implications for the capital markets.
Changes pertaining to Foreign Portfolio Investors (FPIs)
FPIs have been critical capital market builders over the last 20 years. Today the FPIs bring in billions of dollars into Indian equity and debt each year and this goes a long way in helping India bridge her budget deficit gap. The SEBI meet on April 26th is expected to discuss the simplification of the FPI paperwork before bringing money into India. Currently, many FPIs have issues with the elaborate paperwork, approvals and the KYC requirement at multiple levels. Additionally, it is also proposed that large and systematically important NBFCs be classified as Qualified Institutional Buyers (QIBs) rather than applying for IPOs through the normal non-institutional quota. That will broaden the playground for these NBFCs.
Tweaking the IPO and capital market rules
The SEBI is likely to discuss the all-important aspect of appointing a monitoring agency for IPOs below Rs.500 crore. Currently, this monitoring agency is only appointed for issues above the size of Rs.500 crore. This Monitoring Agency will ensure that the funds raised through the IPO are used for the actual purpose for which they are purported. This has been a major problem in the past when small IPOs issuers have used IPO funds for other purposes. This agency will have reporting responsibility towards the regulator and to the IPO investor and this move will go a long way in protecting the interests of small investors and increase the faith and trust that people repose in the integrity of the IPO market as a fund raising mechanism. The market has been rife with discussions over the introduction of options in commodities. This SEBI meet is also likely to take up that topic for discussion. Currently, only trading in futures is permitted in commodities, but the introduction of options will also enable hedging of commodity risk and offer a better platform for institutions to participate in commodities at a later date.
Some changes in rules for mutual funds
The SEBI meet also proposes some key changes for investments in mutual funds. For example, currently mutual funds do not permit investment through e-wallets as source of funds becomes difficult to ascertain. The latest SEBI meet may permit investing in mutual funds through e-wallets. Of course, there is likely to be an outer limit for investment amount via e-wallets. This will mean that anyone with an e-wallet account or even a UPI can just scan their QR code and invest in a mutual fund account. Of course, the KYC will still be required hence the simplification will not be too much in this case. However, this will enable a much larger population to be brought into the ambit of mutual funds investing. This will sync with the rapid growth of digital wallets, digital payments and e-transfers even since the government launched its demonetization in November last year.
Additionally, many large mutual funds are offering instant withdrawal facility, which almost makes it akin to a bank. SEBI has in the past called for greater regulation and scrutiny of such practices. What the SEBI may insist on in this meeting is for mutual funds to get prior approval from the AMC Board or from the Board of Trustees before offering such instant withdrawal facilities to unit holders.
Finally, a unified license for brokers
This has been on the anvil for a long time. Currently, for each exchange you need to seek a separate license for equity trading, derivatives trading and commodities trading. With the commodities market also coming under the purview of SEBI, it is time to centralize and issue a single license for all the activities of brokers. From the brokers point of view, too much time is lost in stringent compliance requirements which end up creating Chinese walls that do not really add value to the customers or to the market overall. The current meeting is likely explore the idea of a Unified license of brokers which will permit them to offer buying and selling in all products including equities, debt, derivatives, currencies, commodities and ETFs.
Some of the proposed agenda items like IPO monitoring, unified license for brokers and simplifying the entry route for FPIs are long overdue. Mr. Tyagi has shown a lot of speed in crucial matters since he took charge just over a month ago. If SEBI can address most of these issues in its first meeting, then it will be the first step in bringing about large scale reforms to the Indian capital markets.