SEBI Board to Discuss Sweeping Regulatory Reforms on June 18

The Securities and Exchange Board of India (SEBI) is set to deliberate on a range of critical proposals at its upcoming board meeting on June 18, according to Financial Express. Key focus areas include co-investment norms for Alternate Investment Funds (AIFs), simplified compliance for Foreign Portfolio Investors (FPIs) in government securities, and structural reforms in capital markets.

Co-Investment Flexibility for AIFs and Simplified FPI Norms

SEBI is expected to explore greater flexibility for AIFs, including allowing co-investment opportunities through dedicated vehicles and enabling fund managers to offer advisory services. These changes would require amendments to the SEBI (Alternative Investment Funds) Regulations, 2012, with a focus on clarifying governance structures and operational boundaries of co-investment entities.

For FPIs investing solely in government securities (gilts), SEBI may propose streamlined KYC and reporting requirements. The goal is to attract long-term, stable foreign capital by reducing procedural burdens.

Ownership Cap for Clearing Corporations and Demerger Plans

In an important move for strengthening market infrastructure, the SEBI board is expected to revisit the ownership structure of clearing corporations, particularly those owned by stock exchanges. The regulator may consider imposing minimum and maximum shareholding thresholds, aligning with global standards and IOSCO recommendations. Experts believe this will bolster governance and reduce conflict-of-interest risks.

Regulatory Overhaul for SME Listings and PSU Delisting

Amid concerns over recent regulatory lapses, SEBI is likely to propose tighter norms for SME listings. Proposed changes may include:

• Longer promoter lock-in periods
• Higher operational profitability thresholds
• Enhanced disclosure norms

These reforms would require amendments to both the SEBI (ICDR) Regulations, 2018 and SEBI (LODR) Regulations, 2015, ensuring that only credible and growth-oriented SMEs access the public markets.

Additionally, SEBI is weighing a special framework for voluntary delisting of public sector undertakings (PSUs), which could include:

• A fixed premium over the floor price
• Relaxed public shareholder approval thresholds (possibly below the current two-thirds requirement)

This would mark a major departure from the current SEBI (Delisting of Equity Shares) Regulations, 2021.

Enhancing Market Access for Institutional and Retail Investors

Market insiders expect SEBI to consider expanding the definition of Qualified Institutional Buyers (QIBs) to include accredited investors, opening doors for a broader class of participants. Other potential reforms include:

• Removing the 200-investor cap on private placements
• Simplifying documentation for Qualified Institutional Placements (QIPs), reducing the time and effort required to raise capital

Such measures are aimed at making capital-raising more efficient, especially for listed companies with strong fundamentals.

Boosting Investment in REITs and InvITs

Another significant proposal on the agenda is the potential reclassification of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) as equity instruments. SEBI may also look to raise mutual fund investment limits in these vehicles.

While some mutual funds may resist the move, proponents argue it could encourage greater passive fund inflows, thereby deepening the market for these instruments and supporting infrastructure development.

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Conclusion

The suite of reforms under discussion reflects SEBI’s commitment to building a more robust, investor-friendly capital market ecosystem. From regulatory alignment with global norms to enhancing investor access and protections, the board’s upcoming decisions could significantly reshape the landscape for institutional and retail investors.

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