The Securities and Exchange Board of India (SEBI) is set to present several critical proposals at its upcoming Board meeting on December 18, 2024, aimed at enhancing investor protection, improving transparency, and simplifying operations for registered entities.
Key Discussion Points
1. SME Listing Reforms
SEBI is likely to introduce new measures to strengthen retail investor protection and encourage participation in the SME segment. Proposed changes include:
- Pre-listing proposals:
- Increase the minimum application size to Rs 2 lakh (from Rs 1 lakh).
- Introduce a draw-of-lot allotment method for Non-Institutional Investors (NIIs) to discourage leverage and mispricing.
- Raise the minimum number of allottees to 200 (from 50).
- Post-listing proposals:
- Extend provisions for related-party transactions (RPTs) under Listing Obligations and Disclosure Requirements (LODR) regulations, with some exceptions.
- Mandate disclosures on board composition and meetings.
- Require quarterly submissions of financials and shareholding patterns.
These changes aim to improve governance and transparency while safeguarding retail investors with limited risk appetite.
2. Insider Trading Norms
SEBI may revise the definition of Unpublished Price-Sensitive Information (UPSI) under the Prohibition of Insider Trading (PIT) Regulations. The new proposals aim to align UPSI with material events under Regulation 30 of LODR, expanding the scope to include:
- Change in ratings or proposed fund-raising decisions.
- Agreements impacting management or control.
- Fraud or defaults by companies, promoters, or senior management.
- Resignations of key managerial personnel (KMP), statutory auditors, or secretarial auditors.
The move comes after SEBI’s findings that companies limited UPSI disclosures to explicitly mentioned items, undermining the law’s intent.
3. Specified Digital Platform Framework
The Board will discuss SEBI’s proposed framework for Specified Digital Platforms (SPFs), introduced in October 2024. This platform aims to streamline compliance for registered entities collaborating with third parties, including brokers and finfluencers. Key requirements for SPF recognition include:
- Mechanisms for fraud prevention, transparency, and collaboration with SEBI.
- Regular report submissions to the regulator on fraud actions, impersonation, and other issues.
The framework is expected to improve accountability in the digital space and benefit brokerages and content creators.
4. Performance Validation Agency (PVA)
SEBI is also expected to finalize the proposal to establish a Performance Validation Agency (PVA), a long-awaited measure designed to validate performance claims by SEBI-registered intermediaries. Key highlights:
- Objective: Aid Research Analysts (RAs), Investment Advisors (IAs), and algo service providers in showcasing validated performance to attract investors.
- Structure: The PVA may operate as a wholly-owned subsidiary of a Market Infrastructure Institution (MII) or a jointly supported entity by multiple MIIs.
Impact and Expectations
The proposals presented in this meeting hold significant implications for SME listings, insider trading norms, and digital compliance. The decisions will enhance investor confidence, improve disclosures, and create a robust framework for intermediaries to operate transparently and efficiently.
Market participants and stakeholders eagerly await the Board’s decisions, particularly regarding SME listings and the much-anticipated Performance Validation Agency, which is expected to play a critical role in boosting investor trust and participation.
