What are the latest changes in the Stock Exchange Regulations by SEBI?

The Securities and Exchange Board of India (Sebi) has announced several significant regulatory changes aimed at improving the stock exchange ecosystem, enhancing investor protection and curbing market manipulation.

Let’s look at the details of these changes and their implications for various market participants.

How will the new criteria for selecting derivatives affect the market?

SEBI has reviewed the criteria for selecting stocks to be included in the derivatives segment. The move is aimed at creating a stronger link between the cash market and the futures and options (F&O) market.

“To ensure a healthy link between the cash market and the futures and options market, we need to align these parameters,” SEBI Chairperson Madhabi Puri Buch said. This decision aims to support a vibrant securities market with appropriate regulation and investor protection.

The new criteria will be applicable to stocks that have been in the derivatives segment for at least six months. Existing stocks will be assessed based on performance and the new criteria will come into effect six months after the issuance of the relevant circular. The change is in response to the increased turnover in the cash market, delivery volume and volatility over the last six years. By preventing low-liquidity and high-volatility stocks from entering the F&O segment, Sebi hopes to curb manipulation of cash stocks through derivatives.

Also read: Stock Market Investing: Get Your Basics Right First

What restrictions are imposed on financial influencers?

To protect retail investors from potentially harmful financial advice, SEBI has banned regulated entities such as mutual funds and brokers from dealing with so-called people influencing the financial market.

“The decision has been taken in response to concerns about certain persons, including unregulated entities, inducing investors to transact securities based on improper claims,” ​​Sebi said in a press release.

However, financial influencers focused on educating investors are exempt from these new restrictions. Regulated entities are responsible for ensuring that those they associate with do not violate SEBI rules, including avoiding promises of guaranteed profits.

Also Read: Money Masterclass: Making Money From Indian Defense Stocks!

What impact will the new product success framework have on single share derivatives?

Sebi has introduced a product success framework for single stock derivatives to ensure market liquidity and participation. This framework will come into effect six months from the issuance of the circular.

“The idea is to introduce the concept of a product success framework, which means that exchanges can introduce a new index for F&O and if the volume does not increase or is not successful, it will be removed,” Buch explained.

This measure aims to prevent manipulation of small-volume contracts, ensuring that only those with adequate liquidity remain in the market.

Also read: Fintech Investing: How to Make Money from Indian Fintech Stocks?

What changes have been made to the voluntary delisting process?

Sebi has facilitated the voluntary delisting process by introducing a fixed price mechanism as an alternative to reverse book building (RBB) for frequently traded shares. The fixed price offered must represent at least a 15% premium over the minimum price specified in the Delisting Regulations. Additionally, the threshold for submitting a counteroffer in the RBB process was lowered from 90% to 75%, provided that the tender offer covers at least 50% of the public share package.

“The counter-offer price shall not be less than the higher of the volume weighted average price (VWAP) of the shares offered/transferred under the RBB process and the indicative price, if any, proposed by the purchaser,” Sebi said in a statement.

The delisting will be considered successful only when, after the offering, the total shareholding of the acquiring company reaches 90%.

What benefits will the new fee mechanism bring to investors?

Sebi has approved a proposal for an optional fee collection mechanism for registered investment advisors (IAs) and research analysts (RAs). This mechanism aims to build trust in the ecosystem by ensuring that investors only make payments to registered IAs and RAs. This distinction will help investors distinguish between registered and unregistered entities operating as IA and RA.

“This mechanism will facilitate investors to avail services and pay fees only to registered IAs and RAs, thereby building trust in the ecosystem,” Sebi said.

What are the implications for alternative investment funds (AIFs)?

Sebi has also introduced changes for alternative investment funds (AIFs). The regulator has approved a proposal to limit the extension of the tenor of a high-value fund to five years, subject to approval by a majority of unitholders. In addition, AIFs can now borrow for up to 30 days to cover temporary payment shortfalls.

How will new cybersecurity and data localization regulations impact the market?

Sebi has mandated data classification and localization for its regulated entities to ensure robust security controls for regulatory data. In addition, a comprehensive cybersecurity and cyber resilience framework has been approved. These measures are aimed at strengthening the security and resilience of market infrastructure institutions.

These regulatory changes brought by Sebi are aimed at improving the equity market ecosystem, enhancing investor protection and ensuring market integrity. By adjusting criteria for derivatives, limiting the influence of financial influencers, introducing a product success framework and facilitating the delisting process, Sebi is taking significant steps to protect the interests of retail investors and maintain a vibrant securities market.

Join our thriving community of entrepreneurs

Follow TICE News on social media and build a strong community of talent, ideas, capital and entrepreneurship. YouTube | Linkedin | X (Twitter) | Facebook | The news