SEBI Board to Discuss Regulatory Changes Amidst Allegations

The SEBI board is set to meet today, September 30, 2024. This meeting comes amid allegations of a conflict of interest against SEBI Chairperson Madhabi Puri Buch by US-based Hindenburg Research. 

In addition, India’s Congress party has accused the SEBI Chairperson of using unpublished price-sensitive information to gain financial benefits by trading in listed securities while she was a full-time member of SEBI.

Initially, SEBI blamed external factors for the unrest but later withdrew this statement after receiving backlash from its staff. As per the SEBI board meeting today, reports suggest that the regulator might discuss tightening rules for futures and options (F&O) trading due to significant losses individual traders face. SEBI may introduce stricter regulations for derivatives trading to reduce speculative activities and control the yearly losses of over ₹50,000 crore suffered by retail investors. Additionally, the SEBI board could consider launching a new asset class, positioned between mutual funds and portfolio management services, to provide investors with more investment options.

Other topics to be discussed at the SEBI board meeting include new regulations for mutual funds, specifically aimed at making compliance easier for funds that focus on passive schemes. SEBI Chairperson Madhabi Puri Buch recently hinted at these ‘MF lite’ rules, and consultations are ongoing to simplify fund distribution.

SEBI is also looking to make rights issues faster and simpler by eliminating the need for companies to submit a draft letter of offer. Only key information like purpose, pricing, and entitlement ratio will be needed, significantly cutting approval times.

The board will also consider easing certification rules for research analysts and investment advisors. Instead of requiring a postgraduate degree, a graduate degree would be enough, and only one exam would be needed. SEBI plans to remove work experience and net worth requirements as well.

Insider trading rules may become stricter as SEBI looks to expand the definition of “connected persons” and include individuals with significant financial connections. This change aligns with the Income Tax Act.

To speed up enforcement against intermediaries, SEBI may bring back ‘summary proceedings’ for minor violations, making the process more efficient. Additionally, SEBI plans to introduce new classifications for merchant bankers, dividing them into two categories based on net worth. Firms will have 2 years to adapt to the new rules.

Lastly, SEBI could discuss creating a Performance Validation Agency to verify the performance claims made by intermediaries like investment advisors and portfolio managers. This would hold them more accountable for their claims.

SEBI employee dissatisfaction and Hindenburg claims

According to market experts, SEBI employee dissatisfaction may be discussed informally during the board meeting today, with possible steps to address these concerns. Although the allegations from Hindenburg Research and the Congress party might not be formally on the agenda, they are expected to come up in informal discussions.

Background

Earlier, Hindenburg Research accused SEBI Chairperson Madhabi Puri Buch and her husband of holding investments in offshore funds tied to Vinod Adani, brother of Adani Group chairman Gautam Adani. The report claimed these funds were used to manipulate the stock prices of Adani Group’s listed companies in India. It also alleged that SEBI changed rules related to real estate investment trusts (REITs) to benefit Blackstone, where Buch’s husband works as a senior advisor.

Additionally, the Congress party accused Buch of trading in listed securities and selling employee stock options from her time at ICICI Bank while she was a member of SEBI. They claim she profited from her advisory firm, potentially violating SEBI’s conflict of interest rules.

Both Buch and SEBI have denied these accusations, but the SEBI board has not yet issued an official statement. The SEBI board consists of Buch, four whole-time members, and three part-time members from the finance ministry, corporate affairs ministry, and the Reserve Bank of India.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.