The Securities and Exchange Board of India (SEBI), during its board meeting on Tuesday, December 20, agreed to gradually phase out the buyback of shares of companies via the stock exchange route. The market regulator has also approved steps to ensure governance boost at the stock exchanges as well as other market infrastructure institutions.
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SEBI Chairperson Madhabi Puri Buch, while addressing a press conference after the meeting, said the regulator chose the tender offer route for the buyback of shares as the current mode is vulnerable to favouritism. "This is a glide path and will lead to the phasing out of the present buyback mode (through stock exchange route)," Buch said.
At present, companies have both options — stock exchange as well as tender offer — for share buyback.
She said there are certain changes under the buyback via the tender route that require the Ministry of Corporate Affairs' approval. She added that share buyback via the tender route offers a level playing field.
Stock exchanges can increase trading hours if they want as there is no restriction from SEBI if exchanges want to increase trading hours.
Besides, the SEBI board has also decided to lessen the time taken for foreign portfolio investors (FPI) registration to facilitate ease of doing business.
On delayed IPOs
Meanwhile, talking about IPOs getting delayed, Buch said SEBI can't be the reason for that. "I have been a merchant banker myself, and therefore, I understand that timing is everything. And for a client when they want to raise capital, if for any reason the timing is missed, it is a very, very serious issue. And it is our desire that service should never be the reason why the client misses timing," she said.
The SEBI chairperson said the market regulator would return IPO DRHP papers if merchant bankers filed incomplete papers. "There is enough data that show that there are some merchant bankers who are repeat offenders," she said.
Explaining what she meant by repeat offenders, she said the merchant bankers bring a document to SEBI, where the latter says there are 25 lacunae in it, following which they go back, take a lot of time and return with incomplete papers. And then after two months the merchant bankers return to SEBI for another client with the same 25 lacunae in the document.
"So... we fully own delays at our end. But the merchant bankers need to fully own delays at their end and inadequate papers that they submit, and simply to show the client that they have filed papers with SEBI will not work now," she said.
On strengthening governance norms
SEBI has decided to categorise the functions of stock exchanges and market infrastructure institutions into three verticals and rationalising the appointment process for public interest directors.
The regulatory changes are expected to bring in "greater transparency and accountability" in the functioning of market infrastructure institutions (MIIs), SEBI said after its board meeting.
The changes, cleared by the board, have been finalised after a comprehensive review of the governance of MIIs — stock exchanges, clearing corporations and depositories.
Going forward, the function of an MII will be categorised into three verticals — critical operations, regulatory, compliance and risk management, and other functions, including business development.
The key management personnel (KMPs) heading the functions under the first two verticals would be at par in the hierarchy with the KMPs heading the third vertical. Also, MIIs would have to give a higher priority to resource allocation towards the functions under the first two verticals.
Public interest directors
SEBI said MIIs would be required to appoint public interest directors (PIDs) mandatorily with expertise in the areas of law and regulation, technology, finance and accounts as well as capital markets.
The PIDs would continue to meet every six months, and in addition to the submission of a report to the board of the MII, they would be required to submit a report to SEBI after the meeting.
Also, SEBI said the internal evaluation of the functioning of MIIs and their statutory committees would be done annually while the external evaluation would be done by an independent entity once in three years.
Apart from setting up an investment committee that would be responsible for evaluating various investments of MIIs, the regulator said the entities would also have to disclose the agenda items and minutes of the governing boards pertaining to regulatory, compliance and risk management aspects, on their respective websites.
"A sharper code of conduct will be applicable to the MII, the governing board, directors, KMPs and committee members... further, board members and KMPs will be held accountable if they are aware of wrongdoing(s) and do not appropriately report the same," SEBI said in a statement.
The definition of KMPs will be changed to cover employees based on the importance of activities carried out by them and their relative hierarchy within the MII. Further, the MII will clearly segregate the roles and responsibilities of the identified KMPs within each function.
SEBI noted that the appointment and removal of KMPs would be done by the respective Nomination and Remuneration Committees (NRCs) of MIIs. MIIs will also have to appoint a separate chief risk officer and the performance of KMPs will be evaluated every six months.
Among others, the chief regulatory officer or compliance officer would be required to submit a quarterly report to the market regulator on non-compliances.
"No employee of the MII would be permitted to simultaneously be an employee of a subsidiary of the MII," the release said.
With respect to data sharing, SEBI has said the MIIs would be required to frame an internal policy for sharing and monitoring data.
The amendments will come into effect from 180 days from the date of notification in the official gazette.
With PTI inputs