The Securities and Exchange Board of India (SEBI) is holding a board meeting today, September 30, 2024. This meeting marks the first since Hindenburg Research made serious allegations against SEBI Chairperson Madhabi Puri Buch. Here’s what to anticipate from the discussions.
The meeting comes against the backdrop of conflict of interest accusations directed at Buch by the US-based Hindenburg Research. The Indian National Congress party has also alleged that Buch utilized unpublished price-sensitive information for financial gain by trading in listed securities during her tenure as a whole-time member of SEBI.
Initially, SEBI attributed the unrest within its ranks to external influences, but the organization later retracted that statement following employee backlash.
Potential Discussion Topics
Reports suggest that the board may consider tightening regulations for futures and options (F&O) trading due to significant losses experienced by individual traders. Business Standard previously indicated that SEBI might introduce stricter norms for derivatives trading to mitigate speculative activities, aiming to curb annual losses exceeding ₹50,000 crore for retail investors.
Additionally, the board could explore the introduction of a new asset class that sits between mutual funds and portfolio management services, providing investors with more diverse options for investment management.
Other Agenda Items
Chairperson Madhabi Puri Buch has recently hinted at upcoming ‘MF Lite’ regulations designed to simplify compliance for mutual funds that focus on passive strategies. Ongoing consultations aim to facilitate the distribution of these funds.
SEBI is also proposing to streamline rights issues by removing the necessity for companies to file a draft letter of offer, allowing essential details such as purpose, pricing, and entitlement ratios to suffice, thereby significantly reducing approval timelines.
Proposals to simplify certification for research analysts and investment advisors will also be on the agenda. This includes allowing a graduate degree instead of a postgraduate one, requiring only one exam, and eliminating work experience and net worth requirements.
In efforts to strengthen insider trading regulations, SEBI plans to broaden the definition of “connected persons” and include additional categories, aligning these definitions with the Income Tax Act and incorporating individuals with significant financial ties.
To expedite enforcement actions against intermediaries, SEBI intends to reintroduce ‘summary proceedings’ for straightforward violations, streamlining the regulatory process.
Another proposal involves classifying merchant bankers into two categories based on net worth, with existing firms granted a two-year transition period to meet the new requirements. SEBI may also discuss the establishment of a Performance Validation Agency to verify performance claims made by registered intermediaries like investment advisors and portfolio managers.
Addressing Employee Dissatisfaction and Allegations
Market experts anticipate that employee dissatisfaction will be discussed informally during the SEBI board meeting, with potential measures to address these issues expected. While the allegations from Hindenburg Research and the Congress party may not be formally on the agenda, they are likely to be touched upon during informal discussions.
Background Context
Hindenburg Research previously accused Buch and her husband of holding investments in offshore funds associated with Vinod Adani, the brother of Adani Group Chairman Gautam Adani. The report alleged these funds were utilized to manipulate stock prices of the Adani Group’s publicly listed companies in India.
The report also claimed that SEBI modified rules concerning real estate investment trusts (REITs) to favor Blackstone, where Buch’s husband holds a senior advisory position. Furthermore, the Congress party alleged that Buch traded in listed securities and sold employee stock options from her time at ICICI Bank while serving at SEBI, suggesting she profited from her advisory firm and potentially violated SEBI’s conflict of interest regulations.
Both Buch and SEBI have denied these allegations, though the board has yet to issue an official statement. The SEBI board consists of Buch, four whole-time members, and three part-time members representing the finance ministry, corporate affairs ministry, and the Reserve Bank of India.
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