Understanding the SEBI (Securities Exchange Board of India) Key Amendments in December 2024

THE SECURITIES AND EXCHANGE BOARD OF INDIA (RESEARCH ANALYSTS) (THIRD AMENDMENT) REGULATIONS 2024

The Regulations came into force on the day of its publication in the Gazette, i.e., 16-12-2024.

Key Changes:

·       The amendment has provided many new definitions under Regulation 2(1), such as “family of an individual research analyst”, “nonindividual”, “part-time research analyst”, “persons associated with research services”, “research services” and “trading calls”.

·       The term "consideration" now includes any form of economic benefits including non-cash benefit, received or receivable, directly or indirectly, in any form whether from client or otherwise for providing research services.

·       “Non-individual” includes body corporates like partnerships and limited liability partnerships, broadening the scope of regulation.

·       Advisors can no longer bundle "reading calls" with investment advisory services to ensure service clarity. [1]

·       Part-time investment advisors must not engage in activities that conflict with their advisory role. Entities registered as both research analysts and investment advisors must maintain separate operations to avoid conflicts of interest.

·       Principal officers of research analyst firms must meet stricter educational and professional criteria.

·       In clause (t) of Regulation 2(1), the definition of research analyst has been shortened and now only defines it as a person who, for consideration, is engaged in the business of providing research services. Previously, the definition mentioned the tasks that a research analyst was responsible for in order to define an analyst.

·       Analysts must explicitly disclose any financial interest or compensation related to the securities they analyze.

·       A limitation of a total of 75 clients that a part-time research analyst can have at any point in time, has been prescribed under Regulation 13(iv).

·       In Regulation 19, clause(vii) has been added whereby, a research analyst or entity will have to disclose the extent of use of Artificial Intelligence tools in providing research services to the client.

·       Regarding the maintenance of records under Regulation 25(1), four more types of records will now have to be maintained by the research analyst or entity.

·       Regulation 26(1) has been amended to provide for who shall be appointed by a non-individual research analyst or entity.

·       A new Regulation 26C has been added which provides for client-level segregation of research services and distribution activities.

THE SECURITIES AND EXCHANGE BOARD OF INDIA (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) (THIRD AMENDMENT) REGULATIONS 2024

The Regulations came into force on the day of its publication in the Gazette, i.e., 12-12-2024.

Key Changes:

·       Listed companies must now ensure a higher percentage of independent directors on their boards.

·       Companies must also obtain shareholder approval for the appointment of certain non-executive directors, ensuring greater oversight.

·       Introduced shares with superior voting rights (SR Equity Shares), which give promoters superior voting rights compared to the equity shared issued by a listed entity.

·       The requirement to submit a compliance certificate to the exchange, signed by both the Compliance Officer of the listed entity and the authorized representative of the share transfer agent, has been removed. Insolvent companies must comply with specific LODR norms, including timelines for appointing compliance officers and disclosures under resolution plans.

·       The requirement to file a certificate certifying that all certificates for transfer, subdivision, consolidation, renewal, exchange, or endorsement of calls/allotment monies have been issued within thirty days of lodgments has been removed.

THE SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL FUNDS) (THIRD AMENDMENT) REGULATIONS 2024

The Regulations came into force on the day of its publication in the Gazette, i.e., 16-12-2024.

Key Changes:

·       A new chapter on Specialized Investment Fund has been incorporated, which lays down the approval requirements for establishing a specialized investment fund and the procedure for launching of investment strategies. The Chapter also enlists permissible investments, restrictions on investments as well as the duties of asset management companies and trustees. Funds can now adopt innovative strategies like open-ended, close-ended, or interval structures.

·       Investment limits cap debt exposure to reduce risks, and restrictions prevent over-concentration in single issuers.

·       Offer documents must clearly disclose subscription and redemption windows for these funds. [2]

·       Another new chapter on Mutual Funds Lite has been added, which mentions the eligibility criteria, norms for shareholding, constitution of a mutual fund lite in the form of a trust as well as appointment, rights and obligations of trustees. The Chapter further enlists the net worth requirement for mutual fund lite asset management company and its obligations, while also providing for the restrictions on its business activities and the procedure for launching mutual fund lite schemes.

SECURITIES AND EXCHANGE BOARD OF INDIA (ICDR & LODR) REGULATIONS [3]

Key Changes:

·       Changed allocation methodology for Non-Institutional Investors from proportionate allotment to Draw of Lots system, aligning with Mainboard IPO practices.

·       Restricted Offer for Sale (OFS) portion to 20% of total issue size, with selling shareholders limited to selling maximum 50% of their holdings

·       Modified promoter shareholding release structure:

• 20% Minimum Promoter Contribution (MPC) remains locked for 2 years

• Excess holdings beyond MPC to be released gradually: 50% after 1 year and 50% after 2 years post-IPO

·       Limited General Corporate Purpose (GCP) Funding:

• Reduced object to the issue to 15 % of issue size

• Overall cap of INR 10 crore

·       Mandated public comment period for Draft Red Herring Prospectus (DRHP):

• 21-day minimum period for public comments

• Required newspaper announcement with QR code

·       Allowed capital increase beyond INR 25 crore on SME board:

• Subject to compliance with main board LODR regulations

• Must meet corporate governance and quarterly results requirements

·       Prohibited use of IPO proceeds for:

• Repayment of loans from Promoter

• Repayment of loans from Promoter Group

• Repayment of loans from any related part
  

OTHER KEY CHANGES

·       Compliance Officer Mandates:

• Compliance officers must now operate full-time and report directly to the board of directors.

·       New minimum operating profit requirement:

• INR 1 Crore EBITDA for 2 out of 3 previous Financial Years before DRHP
  

·       Improved Disclosure Norms:

• Companies must now submit more detailed reports quarterly, including specific complaint redressal and corporate governance details.

• Insolvent entities must adhere to the same LODR requirements as regular entities within a defined timeframe post-restructuring.

·       Enhanced Related Party Transaction (RPT) oversight:

• Main board RPT norms extended to SME listed entities Material transaction threshold set at lower of 10% of annual consolidated turnover and INR 50 crore