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New SEBI rules won't have major impact but welcomed, say experts

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In its board meeting on Tuesday, the Securities and Exchange Board of India (SEBI) made some critical amendments in regulatory provisions related to independent directors (ID) on the boards of listed companies. It has also introduced new rules for mutual funds wherein they have to invest a minimum amount in the new fund offerings to ensure mutual funds have some skin in the game. To discuss the changes and their impact, CNBC-TV18 spoke to Sandeep Parekh, Founder at Finsec Law Advisors and Amit Tandon, MD, IiAS.

In its board meeting on Tuesday, the Securities and Exchange Board of India (SEBI) made some critical amendments in regulatory provisions related to independent directors (ID) on the boards of listed companies.
It has also introduced new rules for mutual funds wherein they have to invest a minimum amount in the new fund offerings to ensure mutual funds have some skin in the game.
To discuss the changes and their impact, CNBC-TV18 spoke to Sandeep Parekh, Founder at Finsec Law Advisors and Amit Tandon, MD, IiAS.
Sandeep Parekh said, “There are two skin-in-the-game requirements of SEBI - one, the employees, including female employees, are required to invest in their mutual fund units — based on the principle that you need to eat what you cook.
They have introduced an investment by the AMCs based on the risk associated with the scheme. Now the press release does not explain it, but I am presuming the riskier the scheme, the more the money AMC needs to put in it.”
But he believes there would be more skin-in-the-game for riskier schemes and less for liquid products.
“Overall, the changes will not have a major impact (like what happened after the Kotak Committee), but they are welcome changes,” he concluded.
The markets regulator also said appointment/reappointment and removal of independent directors should take place through a special resolution of shareholders for all listed entities. Also, the process followed by the Nomination and Remuneration Committee (NRC selects Independent Directors) while appointing independent directors should be more transparent. NRC should disclose the skills they seek in an ID and how the proposed candidate fits into that skillset, SEBI added.
Explaining the new development, Amit Tandon said, “Regulators have said, even for the initial appointment you need to have a special resolution -- 75 percent of the shareholders need to support the appointment.
At the backend, they have said NRC needs to be a little bit more vocal in terms of why an individual has been selected,” he added.
He welcomed the move saying, anything that helps minority investors is welcome.
“At the end of the day, anything that makes capital markets more efficient strengthens the governance is welcomed. So, it is a welcome development as well,” Parekh concluded.
For a full interview, watch the accompanying video.

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