2 March, 2015 C. No. 133 / Capital Market 1 / 2014-15 To: All...

2 March, 2015

C. No. 133 / Capital Market 1 / 2014-15

To: All Members

Dear Sir,

Re: MCCI Capital Market Newsletter (Vol.-1, Nov 2014 – Jan 2015).

Please find attached the first MCCI Capital Market Newsletter (Vol.-1, Nov 2014 – Jan 2015) covering

news related to SEBI. It has been produced by Shri Ashok Pareek, Chairman, Standing Committee on

Capital Market, MCCI. If you have any suggestions, please let us know.

Thanking you, Encl: Attached below

Yours faithfully,

Rajiv Mukerji (Deputy Secretary)

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MCC Chamber of Commerce & Industry

VOLUME: I November'2014-January'2015

014-January'2015

TABLE OF CONTENTS

1 Exit of Stock Exchanges 2

2 Amendments in Regulations 2 – 4

3 Discussion & Consultative Papers 4 – 7

4 Legal Framework 8 – 10

5 SEBI Bulletin 11

6 SEBI Board Meeting 12 – 15

7 New Depository Receipts Scheme, 2014 15 – 16

NEW SEBI OFFICES

The mandate entrusted to SEBI

by the Parliament is threefold -

protection of the interests of

the investors in securities,

regulation of the securities

market and development of the

securities market.

For promoting a balanced pan

India Securities market and in

order to bring physical

proximity of SEBI Offices to the

investors and intermediaries,

SEBI has decided to open Local

Offices in various parts of the

country.

New offices, during the months

November to January, were

inaugurated by SEBI at:

Indore

Shimla

Panaji

MESSAGE FROM THE PRESIDENT

27 February, 2015

Dear Sir/Madam,

It gives me great pleasure to release the MCCI Capital Market newsletter

(November 2014 – January 2015). This Newsletter covers the entire spectrum

of activities of SEBI ranging from Amendments in regulations, Discussion &

Consultative Paper, Legal Framework, Bulletin, Board Meeting and Access to

Capital Market made easier.

I would like to thank Sri Ashok Pareek, Chairman, Standing Committee on

Capital Market, MCCI for bringing out this valuable newsletter. I am sure that

you will find it to be exhaustive, informative and useful.

Warm Regards,

Arun Kumar Saraf

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AMENDMENTS IN REGULATIONS

Securities and Exchange Board of India (Mutual

Funds) (Second Amendment) Regulations, 2014:

Vide notification No. LAD-NRO/GN/2014-15/20/1973 dated

December 30, 2014 SEBI has amended the Securities and

Exchange Board of India (Mutual Funds) Regulations, 1996.

The said Regulations may be called the Securities and

Exchange Board of India (Mutual Funds) (Second

Amendment) Regulations, 2014. As per the said

amendment, under eligibility criteria for appointment of

asset Management Company, if SEBI is satisfied that an

asset management company is taking steps to meet the net

worth requirement within the specified time, the asset

management company may be allowed to launch up to two

new schemes per year.

Securities and Exchange Board of India (Foreign

Venture Capital Investors) (Amendment)

Regulations, 2014:


December 30, 2014 SEBI has amended the Securities and

Exchange Board of India (Foreign Venture Capital Investors)

Regulations, 2000. The said amendments may be called the

Securities and Exchange Board of India (Foreign Venture

Capital Investors) (Amendment) Regulations, 2014. As per

the said amendment, venture capital undertaking would

now mean a domestic company:

i. which is not listed on a recognized stock exchange in

India at the time of making investment; and,

ii. which is engaged in the business for providing

services, production or manufacture of article or things

and does not include following activities or sectors :

1. Non-Banking Financial companies, other than Core

Investment Companies (CICs) in the infrastructure

sector, Asset Finance Companies (AFCs) and

Infrastructure Finance Companies (IFCs) registered

with RBI.

2. Gold Financing

3. Activities not permitted under Industrial policy of

Government of India

4. Any other activity which may be specified by SEBI in

consultation with the Government of India.

Securities Contracts (Regulation) (3rd Amendment)

Rules 2014:

Vide Notification No. F. No. 5/35/2006-CM dated

November 18, 2014, the Securities Contracts (Regulation)

Third Amendment Rules, 2014 were notified.

The amended Rule 19 (2)(b) of the Securities Contracts

(Regulation) Rules, 1957 (SCRR) is as follows:

EXIT OF STOCK EXCHANGES

SEBI vide Circular dated May 30, 2012 had issued

the Guidelines for exit of stock exchanges. This

contained details of the conditions for exit of de-

recognised / non-operational stock exchanges,

inter-alia, including treatment of assets of de-

recognised / non-operational exchanges and a

facility of dissemination Board for companies listed

exclusively on such exchanges, while taking care of

the interest of investors.

Under the same guidelines the following Stock

Exchanges have taken exit as a stock exchange, by

order passed by the Whole time Director of, SEBI.

1. Inter-connected Stock Exchange of India Limited

vide order passed on 8th December 2014;

2. Cochin Stock Exchange Ltd vide order passed on

23rd December 2014;

3. Bangalore Stock Exchange Ltd vide order passed on

26th December 2014;

4. Ludhiana Stock Exchange Ltd vide order passed on

30th December 2014;

5. Vadodara Stock Exchange Ltd vide order passed on

7th January 2015;

6. Guwahati Stock Exchange Ltd vide order passed on

27th January 2015;

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a. If post-issue capital of the company calculated at offer

price is less than or equal to Rs. 1600 Crores: At least

25% of each class or kind of equity shares or

debenture convertible into equity shares issued by

the company is to be offered and allotted to public.

b. If post-issue capital of the company calculated at offer

price is more than Rs. 1600 but less than or equal to

Rs.4000 crores: At least such percentage so that each

class or kind of equity shares or debenture convertible

into equity shares issued by the company to the

public is equivalent to the value of Rs. 400 Crores.

c. If post-issue capital of the company calculated at offer

price is above Rs. 4000 Crores: At least 10% of each

class or kind of equity shares or debenture convertible

into equity shares issued by the company is to be

offered and allotted to public

Further, the company with less than 25% public

shareholding is required to increase its public

shareholding to at least 25%, within a period of three

years from the date of listing of the securities, in the

manner specified by the SEBI). Now the 'Public Sector

Company' has to satisfy the conditions prescribed

above for listing of its securities on stock exchange.

d. The exemption given to a public sector company to

offer and allot at least 10% of the Issue to public in

terms of an offer document has been omitted.

SEBI (Depositories and Participants) (Amendment)

Regulations, 2014:


December 24, 2014, SEBI has amended the Securities and

Exchange Board of India (Depositories and Participants)

Regulations, 1996. The said amendments may be called the

Securities and Exchange Board of India (Depositories and

Participants) (Amendment) Regulations, 2014.

A new regulation 20AB allowing a participant who has been

granted a certificate of registration to act as a participant of

another depository without obtaining separate certificate

of registration subject to approval by such other depository

has been inserted after regulation 20AA of the Securities

and Exchange Board of India (Depositories and Participants)

Regulations, 1996. The same is as follows:

"Acting as participant in more than one depository;

20AB. (1) A participant who has been granted a certificate

of registration may act as a participant of another

depository without obtaining separate certificate of

registration subject to approval by such other depository.

(2) Such a participant who desires to act as a participant of

another depository shall apply to such other depository for

approval in the manner as specified by the Board.

(3) On receipt of an application under sub-regulation (2),

the depository shall, on being satisfied with the compliance

of the provisions of these regulations and other relevant

eligibility requirements specified by the Board, grant

approval to act as its participant subject to payment of

registration fees specified in Part A of Second Schedule in

the manner specified in Part B thereof, by the participant

within 15 days of the receipt of intimation from the

depository.

(4) The depository shall inform the Board about the

approval granted under sub regulation (3).

(5) A participant who has been granted approval under sub-

regulation (3) shall pay annual fees specified in Part A of

Second Schedule in the manner specified in Part B thereof,

separately for each depository.

(6) To keep the registration in force, a participant who has

been granted approval under sub-regulation (3) shall pay

registration fees specified in Part A of Second Schedule in

the manner specified in Part B thereof, for every five years

from the sixth year of the date of grant of approval by the

depository."

Conditions for Issuance of Offshore Derivative

Instruments under SEBI (Foreign Portfolio Investor)

Regulations, 2014:

Vide Circular No. CIR/IMD/FIIC/ 20 /2014 dated November

24, 2014 SEBI has decided to align the applicable eligibility

and investment norms between Foreign Portfolio Investor

(FPI) regime and subscription through the Offshore

Derivative Instruments (ODI) route. Accordingly, it has been

clarified as under.

An FPI shall issue ODIs only to those subscribers which

meet the eligibility criteria as laid down in Regulation 4

of the SEBI (Foreign Portfolio Investor) Regulations,

2014.

An FPI shall issue ODIs only to those subscribers which

do not have opaque structure(s), as defined under

Explanation 1 of Regulation 32(1)(f) of SEBI (Foreign

Portfolio Investors) Regulations, 2014. Opaque

structures mean any structure such as protected cell

company, segregated cell company or equivalent

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where the details of the ultimate beneficial owners are

not accessible.

The investment restrictions under Regulation 21(7) of

SEBI (Foreign Portfolio Investor) Regulations, 2014,

shall apply to ODI subscribers also, and for this purpose

two or more ODI subscribers having common

Beneficial Owner shall be considered as a single ODI

subscriber.

Existing ODI positions which are not in conformity with the

conditions specified in the aforesaid circular may continue

till the expiry of the ODI contract. However no additional

issuances/renewal/rollover of such positions would be

permitted. Fresh issuances of ODIs shall be made only to

the eligible subscribers.

DISCUSSION AND CONSULTATIVE

PAPERS

Consultative Paper seeking public comments on

proposal for allowing FVCIs to invest in Core

Investment Companies engaged in Infrastructure

Sector:

SEBI has released a paper on proposals for allowing FVCIs to

invest in the Core Investment Companies (CICs) engaged in

Infrastructure Sector and making suitable amendments in

the regulations on 5th

November 2014.

SEBI registers Foreign Venture Capital Investors (FVCIs) and

regulates investments by FVCIs in India under SEBI (Foreign

Venture Capital Investors) Regulations, 2000 ("FVCI

Regulations"). RBI through Schedule 6 of the Foreign

Exchange Management (Transfer or Issue of Security by a

Person Resident outside India) Regulations, 2000, also

regulates the flow of money through FVCI route.

Infrastructure is one of the sectors that, has been

permitted by RBI for investment under the FVCI route.

Currently, SEBI (Foreign Venture Capital Investors)

Regulations, 2000 do not permit FVCIs to invest in Non-

Banking Financial Services (with certain exceptions).

Therefore, FVCIs are not permitted to invest in CICs under

the FVCI Regulations since CICs are classified as NBFCs by

RBI. It was observed that the companies investing in

infrastructure sector classified as CICs were not able to

attract funds from FVCIs due to the aforesaid restriction

under the FVCI Regulations. Infrastructure was the

backbone for the development of the country. According to

the 12th Five Year Plan, India required an investment in

Infrastructure sector of around Rs. 65 lakh crores over the

duration of 2012-2017.

As the capital market regulator, SEBI actively encourages

setting of varied frameworks for investment in

infrastructure sector so that lack of structures for financing

of infrastructure is not an impediment for the development

of the sector. For removing any hindrance for investment in

the infrastructure sector through the FVCI route and to

boost the infrastructure sector in the country, SEBI has

proposed that FVCIs may be allowed to invest in CICs

investing in the infrastructure companies.

The proposal was based on the fact that CICs were

essentially holding companies and did not engage in

financing activity similar to other NBFCs and therefore, the

proposal did not go against the intent of the FVCI

Regulations of not allowing FVCI investment in non-banking

financial services.

This proposal to allow investment by FVCIs in CICs investing

in infrastructure companies has also been endorsed by the

Government of India and Reserve Bank of India.

In line with reclassification of NBFCs by RBI over the last

decade, it was also proposed that the negative list under

Schedule III of the FVCI Regulations be suitably modified to

replace 'equipment leasing and hire purchase companies'

with Asset Finance Companies and Infrastructure Finance

Companies".

Discussion Paper on Issuance of partly paid shares

and warrants by Indian companies:

SEBI had released a discussion paper on Issuance of partly paid shares and warrants by Indian companies. The Ministry of Finance has decided to permit issuance of partly paid shares and warrants ("the said instruments") by the Indian companies to foreign investors. In this regard, RBI has notified the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) (Ninth Amendment) Regulations, 2014 on June 30, 2014. The said amendment essentially permits foreign investment in partly paid-up shares and warrants issued by Indian companies. With a view to harmonize the framework for issuance of the said instruments under FEMA and SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (“ICDR”) it is proposed to review the relevant provisions under ICDR. Accordingly, in this Discussion paper the various proposals for amendment to ICDR have been outlined. Some of the important proposals are as follows:

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Issuance of partly paid shares - Requirement of upfront payment in Rights issue:

Since there was no specification as to the minimum amount

to be paid with the application in case of part payment in a

Rights Issue and to enable application by foreign investors

and ensure uniformity with the RBI guidelines, the relevant

Regulation 54(7) of ICDR may be amended to specify that in

case of part payment option being provided by the issuer in

rights issue, the part payment on application shall not be

less than 25 % of the issue price.

Issuance of warrants - Requirement of upfront payment in Public and Rights issue :

Currently, there is no specific provision regarding minimum upfront payment to be received by issuer in respect of issuance of warrants in a public and rights issue. To ensure certainty regarding receipt of funds by the issuer company and in line with the norms prescribed by RBI, the relevant regulation of ICDR may be amended to state that pricing of the warrants and price / conversion formula shall be determined upfront and 25% of the consideration amount shall be received upfront. In case of non-exercise of warrants, entire upfront payment may be forfeited by the issuer.

Issuance of warrants - Period of conversion in Public and Rights issue

To ensure uniformity, regulation 4(3) of ICDR may be

amended to increase the tenure of warrants issued along

with public issue or rights issue of specified securities to 18

month.

Concept paper on Consolidation and Reissuance in

Corporate Bond Market:

The report of High Level Expert Committee on Corporate

Bonds and Securitization (Dr. R.H. Patil Committee) had

recommended for consolidation of privately placed bonds

so as to avoid fragmentation of debt market with multiple

issues and for re-issuances which help in creation of large

floating stocks which is needed to enhance market liquidity.

In order to provide an enabling framework for the same

SEBI proposes to amend the SEBI (Issue and Listing of Debt

Securities) Regulations, 2008 by inserting Regulation 18A

after Regulation 18, which shall read as follows :.

"Consolidation and Re-issuance": 18 (A): An issuer may carry out consolidation and re-issuance of its debt securities, subject to the fulfilment of the following conditions: a) There is such an enabling provision in its articles under

which it has been incorporated;

b) the issue is through private placement; c) the Issuer has obtained credit rating from at least one

credit rating agency registered with the Board and is disclosed;

d) such ratings should be revalidated on a periodic basis and the change if any, shall be disclosed;

e) Appropriate disclosures are made with regards to consolidation and re-issuance, in the Term Sheet;

Discussion paper on Reclassification of Promoters as

Public:

SEBI has released a discussion paper on Reclassification of

Promoters as Public.

Since the present regulatory framework does not prescribe

criteria for re-classification of promoter to public, SEBI has

proposed to prescribe specific criteria to lend objectivity to

the process of reclassification of promoters of listed

companies as public shareholders under various

circumstances. Based on the

deliberations/recommendations of Primary Market

Advisory Committee (“PMAC”), a policy framework which

details the various scenarios and conditions under which a

promoter/promoter group entity can be re-classified as a

public shareholder has been proposed in the Discussion

Paper.

In the Discussion Paper issued by SEBI, the regulator has

laid down the three scenarios under which an entity

belonging to promoter / promoter group of listed

companies may re-classify its shareholding to public

category –

I. Pursuant to an open offer under the SAST Regulations or

on account of an exemption granted by SEBI under the

said Regulations;

II. In case of a separation agreement- The said agreement

shall be duly registered under the Registration Act,

1908 or the material terms of the

separation agreement should be disclosed to the stock

exchanges, prior to the reclassification;

III. The promoter along with the entire promoter group

to which the promoter belongs, taken together, holds

less than 5% shares in the company (including any

convertibles/outstanding warrants/ADR/GDR Holding);

The various conditions subject to which the re-classification

of promoter to public would be allowed along with the

conditions with respect to disclosures and procedures have

also been enumerated in the said Discussion Paper.

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Concept Paper on proposed regulatory framework

for issuance of debt securities by municipalities:

SEBI has released a concept paper on proposed regulatory

framework for issuance of debt securities by municipalities.

Considering the recommendation made by Corporate

Bonds and Securitization Advisory Committee (CoBoSAC),

that there should be a separate framework for issuance and

listing of debt securities by Urban Local Bodies or Municipal

bodies and that SEBI may frame separate regulations in this

regard, SEBI proposes to lay down a regulatory framework

governing the issuance and listing of debt securities by

Urban Local Bodies/ Municipal bodies in India directly or

through a Corporate Municipal Entity for issue and listing of

debt securities by municipalities.

Discussion Paper on Proposed Amendments to

Regulations framed under SEBI Act, 1992 for

Imposing Restrictions on Wilful Defaulters:

To review the Regulations framed under SEBI Act, 1992

with a view to impose restrictions on wilful defaulters

from accessing the capital market, SEBI has issued a

Discussion Paper on proposed amendments to regulations

framed under SEBI Act, 1992 to impose restrictions on

Wilful Defaulters.

The term 'wilful default' has been defined in the Master

Circular issued by the Reserve Bank of India dated July 12,

2012. The Master Circular contains instructions on

identification and other matters relating to wilful

defaulters.

In order to prevent the access to the capital markets by the

wilful defaulters, a copy of the list of wilful defaulters (non-

suit filed accounts and suit filed accounts) are forwarded to

SEBI by RBI and Credit Information Bureau (India) Ltd.

(CIBIL) respectively.

Though Regulation 4(2) of SEBI (Issue of Capital and

Disclosure Requirements) Regulations, 2009 ("SEBI ICDR

Regulations") lays down conditions which debar an issuer

company from making a public issue or rights issue, the

same is currently limited to the issuer of convertible debt

instruments only. Moreover there is no such similar

provision in SEBI (Issue and Listing of Debt Securities)

Regulations, 2008 ("SEBI ILDS Regulations") and in SEBI

(Issue and Listing of Non-Convertible Redeemable

Preference Shares) Regulations, 2013 ("SEBI NCRPS

Regulations").

Thus under the current regulatory framework if the issuer

company is intending to issue equity shares / debt security

/ non-convertible redeemable preference shares (i.e., any

instrument other than convertible debt instrument), and is

included in the list of wilful defaulters published by the RBI,

such issuer company shall be able to access the capital

market by way of public issue or rights issue.

The following are recommendations of SEBI to impose

restrictions on wilful defaulters from accessing the capital

market:

Recommendation 1 No issuer shall make a public issue of

equity securities, if the issuer, its promoter, group company

or director of the Issuer of such securities, is in the list of

the Wilful defaulters, published by the Reserve Bank of

India.


the debt securities, if the issuer, its promoter, group

company or director of the Issuer of such securities, is in

the list of the Wilful defaulters, published by the Reserve

Bank of India or it is in default of payment of interest or

repayment of principal amount in respect of debt

instruments issued by it to the public, if any.


non-convertible redeemable preference share, if the issuer,

its promoter, group company or director of the Issuer of

such securities, is in the list of the Wilful defaulters,

published by the Reserve Bank of India or it is in default of

payment of interest or repayment of principal amount in

respect of debt instruments issued by it to the public, if

any.

Recommendation 4 Existing listed companies / its

promoter / group company / director of the Issuer

categorized as 'wilful defaulter' may make a rights issue /

private placement to qualified institutional buyers, with full

disclosures in the offer document.



categorized as 'wilful defaulter' should not be allowed to

take control over other listed entity in accordance with SEBI

(SAST) Regulations, 2011.



categorized as 'wilful defaulter' should be allowed to make

counter offer in case of a hostile bid.

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Discussion Paper on revisiting the capital raising

process:

SEBI, vide its discussion paper dated January 08, 2015, has

examined how to further facilitate capital raising by existing

listed companies through FPO/Rights issue so as to provide

retail investors the opportunity to participate in subsequent

offerings and enable issuers to raise capital in the shortest

possible time span. Further, SEBI has also been

continuously striving to shorten the time duration from

issue closure to listing. The Discussion paper contains

proposal on the following two areas;

Proposal on use of Secondary Market infrastructure

for making applications in Public Issue (“e-IPO”)

Proposal on Fast Track Issuances (FPO and Rights

Issue).

a. Proposal on use of Secondary Market infrastructure

for making applications in Public Issue (“e-IPO”)

The broad process flow by using the secondary market

infrastructure for primary issuance including a day wise

schedule of activities has been enumerated in the

Discussion Paper and public comments have been solicited

specifically on the following points:

a. Should the requirement of having an abridged

prospectus along with application form be made non-

mandatory?

b. Should ASBA be mandated for all investors?

c. If ASBA is continued as a voluntary mechanism for retail

investors, should it be made voluntary for non-retail

investors as well?

d. Should National Automated Clearing House mechanism

by National Payments Corporation of India be mandated

for collecting payment from investors?

e. Suggestions/modifications on the mechanism proposed

in order to achieve reduction in time and cost of capital

raising?

b. Proposal on Fast Track Issuances (FPO and Rights

Issue)

As per SEBI (ICDR) Regulations, 2009 (“ICDR Regulations”),

no draft offer document is required to be filed with SEBI for

a fast track issuance. Under the existing regulatory

framework, fast track route is available to all listed issuers

proposing to undertake a rights issue or a follow on public

offering (FPO) subject to certain eligibility criteria as stated

in Regulation 10 of ICDR Regulations.

It has been proposed in the Discussion Paper that the fast

track route may be extended to companies having an

average market capitalisation of public shareholding

between Rs. 250 crores to Rs. 3,000 crores, subject to

fulfilment of certain additional conditions as stated in the

Discussion Paper and public comments have been solicited

specifically on the following points:

a. Should the existing criteria of minimum market

capitalisation of public float be lowered?

b. If yes, what should be the level of market capitalisation

of public float that should be considered for issues

under fast track route?

c. If the requirement of minimum market capitalisation of

public float is lowered what additional conditions

should be introduced so as to ensure only credible

issuers access the market through fast track route

without vetting by SEBI?

d. Whether the additional conditions proposed are

sufficient or further additional conditions may be

specified?

e. Suggestions to facilitate fast tracking of issues by

existing listed issuers and at the same time ensuring

adequate protection of investors?

Consultative paper on managing/advising of

Offshore Pooled Assets by Local Mutual Fund

Managers:

The extant SEBI (Mutual Funds) Regulations, 1996, (“SEBI

MF Regulations”) inter-alia, allow an Asset Management

Company (AMC) to undertake business activity of

management and advisory of offshore pooled assets / fund.

Keeping in view the challenges faced by the local fund

managers in managing offshore pooled assets and the

introduction of SEBI (Foreign Portfolio Investors)

Regulations, 2014 (“FPI Regulations”) which has

rationalized the investment routes and monitoring of

foreign portfolio investments and also streamlined

categories of foreign investors, it is proposed through this

Discussion paper that the requirements laid out in

regulation 24(b) of SEBI MF Regulations i.e.

i. Appointment of separate fund manager;

ii. Replication of portfolio

iii. The criteria of 20 investors with no single investor

holding more than 25 percent;

may not be applicable to funds managed / advised by

local fund managers of AMCs in regard to (i) Category I- FPIs

and (ii) broad based Category II -FPIs.

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LEGAL FRAMEWORK

Consolidated Account Statement (CAS) for all

securities assets

SEBI vide Circular No. CIR/MRD/DP/31/2014 date November

12, 2014 has instructed mutual fund houses, registrar and

transfer agents (RTAs) and depositories to issue a unified

consolidated account statement (CAS) for mutual funds and

stock holdings from March 2015.Vide the above mentioned

circular SEBI has decided to enable a single consolidated

view of all the investments of an investor in Mutual Funds

(MF) and securities held in demat form with the

Depositories.

The market regulator has asked fund houses, R&T agents

and depositories to put in place a system to facilitate

generation and dispatch of single CAS for investors having

mutual fund investments and those holding demat

accounts. Depositories are required to consolidate the

details of stock holdings and mutual fund units of investors.

The single CAS will be sent to investors within 10 working

days from last date of the month. Depositories have been

instructed to keep such information confidential.

Consolidation of account statement shall be done on the

basis of PAN. In case investors have multiple accounts

across the two depositories, the depository having the

demat account which have been opened earlier shall be

treated as the default depository to consolidate details

across depositories and MF investments and dispatch the

CAS to the investor. But there is an option available to the

demat account holder to choose the depository through

which he wishes to receive the CAS.

The CAS shall be generated on a monthly basis. A proper

grievance redressal mechanism shall be put in place by the

depositories, fund houses, R&T agents which shall also be

communicated to the investors through CAS. The CAS shall

be implemented from the month of March 2015 with

respect to the transactions carried out during the month of

February 2015.

Modification to Offer for Sale (OFS) of Shares

through stock exchange mechanism

Comprehensive guidelines on sale of shares through Offer

for Sale mechanism were issued by SEBI vide Circular No.

CIR/MRD/DP/32 /2014 dated July 18, 2012. These

guidelines had earlier been modified vide circulars dated

January 25, 2013, May 30, 2013 and August 08, 2014.

To make it easier for retail investors to participate in OFS,

SEBI has allowed the seller to give an option to retail

investors to place their bid at cut-off price in addition to

placing price bids subject to , certain conditions as specified

in the said circular.

In respect of bids in the retail category, clearing corporation

shall collect margin to the extent of 100% of order value in

cash or cash equivalents. Pay-in and pay-out for retail bids

shall take place as per normal secondary market

transactions.

ORDER IN THE MATTER OF VADODARA STOCK EXCHANGE LTD (“VSE”)

SEBI had issued a Show Cause Notice dated March 22, 2013 to the Vadodara Stock Exchange Limited, alleging that the

conduct of VSE lacked transparency, due diligence and appeared to be arbitrary in nature. The Show Cause Notice was

issued on the basis of the observations and findings of an inspection conducted on VSE by SEBI during the year 2009. VSE

vide letter dated April 15, 2013, VSE submitted its explanations to the allegations in the Show Cause Notice.

Vide order dated January 7, 2015, SEBI cautioned Vadodara Stock Exchange Limited for its conduct and advised VSE to

ensure transparency and fairness in its dealings in future and also ensure compliance with all statutory provisions that

govern its activities in the securities market and disposed of the Show cause Notice dated March 22, 2013.

SEBI TAKES PART IN INDIA INTERNATIONAL TRADE FAIR

As part of its endeavour for spreading the message of financial literacy and investor awareness, SEBI had participated in the

34th India International Trade Fair, 2014 from November 14, 2014 to November 27, 2014 at New Delhi.

9


SEBI cautions investors not to invest in schemes

offered by entities barred by SEBI from raising

money

SEBI, vide Press release no. 174/2014 dated December 17,

2014 has cautioned Investors not to invest in schemes

offered by entities barred by SEBI from raising money.

It had been observed by SEBI that certain entities collect /

mobilize money under existing / new schemes though SEBI

has directed such entities not to collect any further money

or to launch any new schemes, etc. These companies /

entities without obtaining registration illegally collect /

mobilise money, from investors by making false promises,

assuring unrealistic return, etc.

SEBI had always taken appropriate action against the

entity/ies and its Directors including debarment from

accessing the Capital markets, etc. whenever such schemes

have been found to be in the nature of Collective

Investment Schemes (CIS). List of the Companies against

whom order has been passed by SEBI has been given with

the aforesaid press release.

Investors and general public have been cautioned through

this press release that other than "GIFT Collective

Investment Management Company Limited" no other entity

was registered with SEBI under the CIS Regulations.

Redressal of investor grievances through SEBI

Complaints Redress System (SCORES) platform

In order to enable the users to have an access to all the

applicable circulars/directions at one place, SEBI has, vide

Circular No. CIR/OIAE/1/2014 dated December 18, 2014,

consolidated the current provisions on SCORES.

SEBI had launched a centralized web based complaints

redress system ‘SCORES’ in June 2011 to provide a platform

for aggrieved investors, whose grievances, pertaining to

securities market, remained unresolved by the concerned

listed company or registered intermediary after a direct

approach. SEBI had from time to time issued various

circulars/directions with respect to SCORES.

The key highlights of the circular are: Features of SCORES: The salient features of SCORES are:

Centralised database of investor complaints

Online movement of complaints to the concerned listed company or SEBI registered intermediary

Online upload of Action Taken Reports (ATRs) by the concerned listed company or SEBI registered intermediary

Online viewing by investors of actions taken on the complaint and its current status.

All newly listed companies and SEBI registered

intermediaries (excluding Stock Brokers, Sub-Brokers and

Depository Participants) have been asked to obtain SCORES

user id and password within a period of one month from

the date of listing. Stock brokers, sub-brokers and

depository participants are not required to obtain SCORES

authentication as complaints against these intermediaries

would continue to be routed through the platforms of the

concerned stock exchange or depository. Failure by any

listed company or SEBI registered intermediary to obtain

the SCORES user ID and password would not only be

deemed as non-redressal of investor grievances but also

indicate wilful avoidance of the same.

Process: The listed companies and SEBI registered intermediaries shall update the ATR along with supporting documents, if any, electronically in SCORES. ATR in physical form need not be sent to SEBI. The proof of dispatch of the reply of the listed company / SEBI registered intermediary to the concerned investor should also be uploaded in SCORES and preserved by the listed company / SEBI registered intermediary, for future reference. All relevant details/ supporting documents should be uploaded in SCORES; otherwise the complaints will be treated as pending. Review of mechanism: All listed companies and SEBI registered intermediaries shall review their investor grievances redressal mechanism so as to further strengthen it and correct the existing shortcomings, if any. The listed companies and SEBI registered intermediaries, to whom complaints are forwarded through SCORES, shall take immediate efforts on receipt of a complaint, for its resolution, within thirty days. The listed companies and SEBI registered intermediaries shall keep the complainant duly informed of the action taken thereon. A complaint shall be treated as resolved/disposed/closed only when SEBI disposes/closes the complaint in SCORES. The Board of Directors of the listed company or the Board of Directors/ Proprietor/Partner of the registered intermediary shall be responsible for ensuring compliance

with the provisions of the aforesaid Circular.

10


Registration for the purpose of Foreign Accounts Tax

Compliance Act (FATCA)

The Government of India has informed SEBI that as per the

FAQ published on the US Internal Revenue Service (IRS)

website, Foreign Financial Institutions (FFIs) in Model 1

jurisdictions need to register with the US IRS and obtain a

Global Intermediary Identification Number (GIIN) before

January 01, 2015, or at the earliest, in order to avoid

withholding.

Vide Circular No. CIR/MIRSD/6/2014 dated December 30

2014; SEBI has asked all SEBI registered intermediaries who

maintain US reportable accounts, as defined in the Model 1

Inter-Governmental Agreement, to take appropriate action.

Single Registration for Depository Participants

As per the amended SEBI (Depositories and Participants)

Regulations, 1996, the existing requirement of obtaining

certificate of initial registration to act as a participant and

subsequently permanent registration to continue to act as a

participant for each depository has been done away with.

Henceforth, one certificate of initial registration and

subsequently permanent registration through any

depository shall be required after commencement of the

Securities and Exchange Board of India (Depositories and

Participants) (Amendment) Regulations, 2014.

SEBI, vide its Circular No. CIR/ MIRSD/5/ 2014 dated

December 30, 2014, have issued guidelines for the purpose

of implementing the above registration requirements.

Index based market-wide circuit breaker mechanism

SEBI has vide Circular No CIR/MRD/DP/02/2015 dated

January 12, 2015 provided the broad steps to further

strengthen the mechanism of index based market-wide

circuit breaker based on recommendations of SEBI’s

Technical Advisory Committee (“TAC”) and Secondary

Market Advisory Committee (“SMAC”).

It has been decided to further strengthen the mechanism of

index based market-wide circuit breaker as under:

a) NSE and BSE shall compute their market-wide index

after every trade in the index constituent stocks, and

check for any breach of market-wide circuit breaker

limits after every such computation of the market-wide

index.

b) If any breach arises, trading halt needs to be brought

as mandated by SEBI circular and all unmatched orders

shall be purged by the stock exchange.

Risk Management Policy at the Depositories

Based on the recommendations of the Depository Systems

Review Committee (“DSRC”) SEBI vide Circular No

CIR/MRD/DP/ 1 /2015 dated January 12, 2015 has advised

depositories to establish a clear, comprehensive and well

documented risk management framework. The

Depositories vide this circular have also been advised to put

in place mechanism to implement the Risk Management

Framework through a Risk Management Group/ Committee

which shall be headed by a Chief Risk Officer(CRO).

The broad responsibilities of the said Committee inter alia

include meeting periodically to continuously identify,

evaluate and assess applicable risk in depository system

through various sources and to suggest measures to

mitigate risk wherever applicable. The committee is also

required to monitor and assess the adequacy and

effectiveness of the risk management framework and

review and update the risk management framework

periodically. The Board of the depository has also been

asked to approve the Risk Management Framework. The

depositories have been asked to implement the provisions

of the said circular within three months from the date of

the said circular.

FREQUENTLY ASKED QUESTIONS SEBI released the following FAQ’s:

(1) FAQ on Foreign Portfolio Investor (FPI) Regulations, 2014 (2) FAQ on SEBI (Research Analysts) Regulations, 2014

11


SEBI BULLETIN

SEBI Bulletin inter-alia covers capital market review,

monthly review of global financial markets press releases

and circulars, orders passed by chairman/members and

adjudicating officers and highlights of developments in

international securities market. SEBI has released its bulletin

in November and December on dated 27-11-14 and 30-12-

14 respectively. SEBI Bulletin for January was released on

23-01-15. The monthly trends in the market during the

month ended December 31, 2014 are as follows:

a. Rs. 858 crore were mobilised in the primary market

(equity and debt issues) by way of five issues as compared

to Rs. 1,248 crore mobilized through five issues in

November 2014, showing a decrease of 31.3 percent from

the previous month;

b. The cumulative amount mobilised for the financial year

2014-15, so far, stood at Rs. 11,642 crore through 64

issues as against Rs. 25,466 crore through 48 issues

during the corresponding period of 2013-14.

c. There were nine QIP issues worth Rs. 2,559 crore in the

market as compared to one QIP issue worth 491 crore in

November 2014;

d. There were 21 preferential allotments (Rs. 606 crore)

listed at BSE and NSE during December 2014 as compared

to 34 preferential allotments (Rs. 1,112 crore) in

November 2014;

e. In the corporate debt market, Rs. 47,898 crore were

raised through 296 issues by way of private placement

listed at BSE and NSE during December 2014 compared to

Rs. 37,657 crore raised through 298 issues in November

2014;

f. During December 2014, Mutual Funds saw a net outflow

of Rs. 41,388 crore (private sector mutual funds

witnessed outflow of Rs. 38,936 crore while public sector

mutual funds saw outflow of Rs. 2,452 crore) as

compared to a net outflow of Rs. 25,628 crore (private

sector mutual funds witnessed outflow of Rs. 18,410

crore while public sector mutual funds saw outflow of Rs.

7,218 crore) in November 2014;

g. S&P BSE Sensex closed at 27,499.4 on December 31,

2014, as against 28,693.9 on November 28, 2014,

registering a decrease of 1,194.5 points (4.2 percent).

During December 2014, Sensex recorded an intraday high

of 28,809.6 on December 1, 2014 and an intraday low of

26,469.4 on December 17, 2014;

h. CNX Nifty closed at 8 ,282.7 on December 31, 2014

compared to 8,588.3 on November 28, 2014 indicating a

decrease of 305.5 points (3.6 percent);

i. The market capitalisation of BSE and NSE decreased by

1.5 percent and 1.4 percent to Rs. 98,36,377 crore and Rs.

96,00,459 crore, respectively, at the end of December

2014;

j. The total number of investor accounts was 136.3 lakh at

NSDL and 94.0 lakh at CDSL at the end of December 2014.

In December 2014, the number of investor accounts at

NSDL and CDSL increased by 0.6 percent and 1.5 percent,

respectively, over the previous month;

k. The monthly total turnover in equity derivative market at

NSE increased by 30.8 percent from Rs. 41,10,522 crore

in November 2014 to Rs. 53,76,775 crore in December

2014.

l. The monthly total turnover in equity derivative segment

of BSE decreased by 30.2 percent from Rs. 31,40,459

crore in November 2014 to Rs. 21,90,780 crore in

December 2014.

m. In the Corporate Debt Market, during December 2014,

there were 1,609 trades with a value of Rs. 17,990 crore

reported on BSE as compared to 1,791 trades with a value

of Rs. 19,864 crore in November 2014. At NSE, 5,694

trades were reported in December 2014 with a trading

value of 85,034 crore as compared to 5,400 trades

reported in November 2014 with a trading value of

86,350 crore;

n. Mutual Funds made net investment of Rs. 60,969 crore in

the secondary market in December 2014 compared to net

investment of Rs. 46,263 crore in November 2014. Mutual

funds invested Rs. 7,037 crore in equity in December

2014 compared to Rs. 1,677 crore in November 2014.

Further, Mutual Funds invested Rs. 53,932 crore in debt

market in December 2014 as against of Rs. 44,586 crore

invested in November 2014;

o. With the commencement of Foreign Portfolio Investor

(FPI) Regime from June 1, 2014, the erstwhile FIIs, Sub

Accounts and QFIs are merged into a new investor class

termed as “Foreign Portfolio Investors (FPIs)”. There was

a net inflow of Rs. 12,225 crore in December 2014 by FPIs

compared to net inflow of Rs. 25,476 crore sin November

2014;

p. Total assets under management (AUM) of Portfolio

Management Services (PMS) industry has increased by

1.7 percent from Rs. 8,53,956 crore in November 2014 to

Rs. 8,68,384 crore in December 2014;

q. In December 2014, seven open offers with total value of

Rs. 2,712 crore were made to shareholders against two

open offers with total value of Rs. 31 crore in November

2014;

12


SEBI BOARD MEETING

THE SEBI BOARD MEETING HELD ON 19th NOVEMBER

WAS BASED ON THE FOLLOWING ISSUES:

a. SEBI (Prohibition of Insider Trading) Regulations, 2014

The Board approved the SEBI (Prohibition of Insider Trading)

Regulations, 2014 in place of SEBI (Prohibition of Insider

Trading) Regulations, 1992. The new regulations strengthen

the legal and enforcement framework, align Indian regime

with international practices, provide clarity with respect to

the definitions and concepts, and facilitate legitimate

business transactions. Some of the salient features of the

SEBI (Prohibition of Insider Trading) Regulations, 2014 are

as under:

The definition of Insider has been made wider by

including persons connected on the basis of being in any

contractual, fiduciary or employment relationship that

allows such person access to unpublished price sensitive

information (UPSI).

Immediate relatives will be presumed to be connected

persons, with a right to rebut the presumption. In 1992

regulations, definition of connected person was largely

position based.

In the case of connected persons the onus of

establishing, that they were not in possession of UPSI,

shall be on such connected persons.

Clear prohibition on communication of unpublished

price sensitive information (UPSI) has been provided

except legitimate purposes, performance of duties or

discharge of legal obligations.

Considering every investor's interest in securities

market, advance disclosure of UPSI at least 2 days prior

to trading has been made mandatory in case of

permitted communication of UPSI.

The definition of UPSI has been strengthened by

providing a test to identify price sensitive information,

aligning it with listing agreement and providing platform

of disclosure. Earlier, the definition of price sensitive

information had reference to company only; now it has

reference to both a company and securities.

Companies by law would be entitled to require third-

party connected persons to disclose their trading and

holdings in securities of the company.

In line with Companies Act, 2013, prohibition on

derivative trading by directors and KMPs on securities of

the company has been provided.

A provision of Trading Plans on the lines of U.S. has been

introduced for insiders with necessary safeguards. Such

a plan has to be for bona fide transactions and has to be

disclosed on stock exchange platform in advance.

Principle based Code of Fair Disclosure and Code of

Conduct has been prescribed.

Repeated disclosures have been removed so as to ease

compliance burden and to align with Takeover Code.

Disclosure of any change of 2% for persons holding more

than 5% shares or voting rights has been removed as

they are prescribed under Takeover Code.

b. Conversion of Listing Agreements into Regulations -

SEBI (Listing Obligations and Disclosure Requirements)

Regulations, 2014.

The SEBI (Listing Obligations and Disclosure Requirements)

Regulations, 2014 (Listing Regulations), inter-alia, will be

comprehensive Regulation in respect of various types of

listed securities. This Regulation would consolidate and

streamline the provisions of existing listing agreements

thereby ensuring better enforceability. This Regulation

would be applicable for:

i. Specified Securities (includes equity and convertibles) -

Listed on Main Board and SME Platform

ii. Non-convertible Debt Securities

iii. Non-Convertible Redeemable Preference Shares

(NCRPS)

iv. Indian Depository Receipts

v. Securitised Debt Instruments

vi. Units issued by Mutual Fund Schemes

The listing Regulations have been sub-divided into three

parts; (a) Main Body-Substantive Provisions; (b) Schedules-

Procedural Requirements; (c) various formats/ forms of

disclosures specified by SEBI circular. Some of the important

new provisions in the Listing Regulations include-:

Mandatory filing on Stock Exchanges through electronic

platform.

Mandatory appointment of Company Secretary as

compliance officer except for units of Mutual Funds

listed on Stock Exchanges.

Introduction of enabling provision for Annual

Information Memorandum.

Mandatory registration in SCORES by all listed entities

for redressal of investor grievances.

Necessity to execute a shortened version of Listing

Agreement within six months of notification of these

regulations.

There were certain provisions in the listing agreements

related to issuance of securities and not in the nature of

continuous obligations, such as, 1% security deposit,

allotment, refund, payment of interest on account of delay

13


in allotment / non-allotment, etc. They have been now

incorporated in respective regulations, viz., ICDR

Regulations, ILDS Regulations, etc. Similarly, requirements

which are in the nature of continuous disclosure and

obligations have been shifted and now incorporated in the

Listing Regulations.

c. Amendment to SEBI (Delisting of Equity Shares)

Regulations, 2009.

As a part of SEBI's constant endeavor to review the existing

regulatory framework to align with the changing market

realities, SEBI has approved various changes to SEBI

(Delisting of Equity Shares) Regulations, 2009. Some of the

important changes to the SEBI (Delisting of Equity Shares)

Regulations, 2009 are as under:

The delisting shall be considered successful only when (A) the shareholding of the acquirer together with the shares tendered by public shareholders reaches 90% of the total share capital of the company and (B) if at least 25% of the number of public shareholders, holding shares in dematerialised mode as on the date of the Board meeting which approves the delisting proposal, tender in the reverse book building process.

The offer price determined through Reverse Book Building shall be the price at which the shareholding of the promoter, after including the shareholding of the public shareholders who have tendered their shares, reaches the threshold limit of 90%.

The promoter/ promoter group shall be prohibited from making a delisting offer if any entity belonging to the said group has sold shares of the company during a period of six months prior to the date of the Board meeting which approves the delisting proposal.

Stock Exchange platform to be used for offers made under delisting, buy back and takeover regulations.

Companies whose paid up capital does not exceed Rs.10 crores and net worth does not exceed Rs.25 crores as on the last day of the previous financial year are exempted from following the Reverse Book Building process.

Timelines for completing the delisting process has been reduced from 137 calendar days (approx 117 working days) to 76 working days.

Option to the acquirer to delist the shares of the company directly through Delisting Regulations pursuant to triggering Takeover Regulations has been provided. However, if the delisting attempt fails, the acquirer would be required to complete the mandatory open offer process under the Takeover Regulations and pay interest @ 10% p.a. for the delayed open offer.

d. Amendment in SEBI (Mutual Funds) Regulations, 1996.

SEBI Board has approved a proposal permitting AMCs who

are yet to meet with the revised net worth requirement of

Rs. 50 crore, to launch a maximum of two schemes per year

till the time such AMCs meet with the net worth

requirements. Such permission would be considered on a

case to case basis, depending on such AMCs demonstrating

that serious efforts are being made by them to meet the net

worth requirements within the prescribed timelines.

e. Amendments in Securities and Exchange Board of India

(Foreign Venture Capital Investors) Regulations, 2000

The FVCI Regulations till now did not allow investments in

NBFCs except Equipment Leasing and Hire Purchase

Companies. To encourage investments in infrastructure, the

Board approved amendments in FVCI Regulations to allow

FVCIs to invest in NBFC-CIC (Core Investment Companies),

as defined by RBI.

f. Risk based supervision of market intermediaries

SEBI has stated that it is in the process of formalizing its risk

based approach towards supervision of market

intermediaries which will be in alignment with the global

best practices. The system will be implemented in a phased

manner.

g. Granting Single Registration to Depository Participants

SEBI has approved the policy of granting single registration

for the application of initial registration as well as the

permanent registration for operating with both the

Depositories. Currently, the Depository participants are

required to obtain separate registration for both the

depositories and further applicants are granted initial

registration for five years and then permanent registration.

As per the new policy, SEBI would process the registration

application only for the first time as initial or permanent as

the case may be, through one depository and subsequent

permissions to act as DP of other depository shall be

granted by the concerned depository.

h. Notice for settlement of certain administrative and civil

proceedings

SEBI has decided that in case of minor violations intimation

will be sent about the impending enforcement action to the

concerned parties upon approval of the said actions by the

competent authority and before a show cause notice is

issued. This would enable parties to seek settlement of

proceedings or make voluntary submissions even prior to

receipt of a detailed show cause notice. If any party avails

such an opportunity to respond to such a notice, the

proposed proceedings may be settled (unless rejected) or

14


discontinued on the basis of the submissions of the noticee

(if any).

i. Re-classification of Promoters as Public

The Board approved the proposal to initiate public

consultation process on re-classification of promoters on

the basis of the discussion paper placed before it.

j. Issuance of partly paid shares and warrants by Indian

companies

The Board approved the proposal to initiate public

consultation process regarding issuance of partly paid

shares and warrants by Indian companies on the basis of

the discussion paper placed before it.

k. Use of Secondary Market infrastructure for public

issuance (“e-IPO”)

The Board approved the proposal to frame suitable

regulations for using Secondary Market infrastructure for

public issuance (“e-IPO”) after going through the public

consultation process.

l. Imposing restrictions on wilful defaulters -

Amendments to Regulations framed under SEBI Act,

1992

The Board approved the proposal to review the policy in

respect of restricting an issuer company / its promoter /

directors, categorized as wilful defaulter, from raising

capital after going through the public consultation process.

THE SEBI BOARD MEETING HELD ON 22nd JANUARY

2015 WAS BASED ON THE FOLLOWING ISSUES:

a. Issuance of partly paid shares and warrants by Indian

companies –

In order to harmonize the norms on receipt of upfront

payment and tenure of partly paid shares / warrants

between the SEBI (ICDR) Regulations, 2009 and Foreign

Exchange Management Act, the Board approved the

following proposal:

i. In case of partly paid shares issued through Public /

Rights Issue, a minimum 25% of the issue price shall

necessarily be received upfront. The balance

consideration shall continue to be received within 12

months if the issue size is less than Rs. 500 crore. Where

the issue size exceeds Rs. 500 crore and the issuer has

appointed a monitoring agency, the period can be

decided by the issuer as per the existing regulatory

framework.

ii. In respect of warrants issued along with public or rights

issue of specified securities, 25% of the consideration

shall be received upfront by the issuer and tenure of

such warrants shall be 18 months as against 12 months

presently.

b. Amendments in Securities and Exchange Board of India

(Issue and Listing of Debt Securities) Regulations, 2008

–

The Board approved amendments to Issue and Listing of

Debt Securities (ILDS) Regulations to incorporate express

provisions for enabling "Consolidation and Re-issuance of

Debt Securities" and "Call and Put options".

By enabling consolidation and re-issuance of debt-

securities, the illiquid and infrequently traded corporate

bonds can be re-issued thereby leading to creation of a

larger floating stock that can increase liquidity in the

market. By enabling Call and Put options, the issuer and

investors would of have flexibility in redemption debt

securities.

c. Amendments in Securities and Exchange Board of India

(Public offer and Listing of Securitised Debt

Instruments) Regulations, 2008 –

The Securitised Debt Instruments (SDI) Regulations

prescribe for registration of trustees with certain

exemptions, roles and responsibilities of trustees and their

code of conduct.

In order to further develop the securitisation market, the

Board approved amendments in SDI regulations to

rationalize and clarify the role and responsibilities of

trustee, allowing banks and public financial institutions to

act as trustee without obtaining registration, terms of

appointment and capital requirement for trustee, and

providing for a summary term sheet. The term sheet inter-

alia includes disclosures on originators, Issuer, trustee,

transaction structure, etc., key pool features, credit

enhancement, etc. to enhance disclosure requirements for

SDI. The above measures are expected to enhance the

confidence of investors in securitisation transactions.

d. Companies exclusively listed on exiting stock exchanges

to get time for listing on nation-wide stock exchanges –

In light of stock exchanges exiting in terms of SEBI circular

dated May 30, 2012, many of their exclusively listed

companies have expressed concern that they are unable to

15


get listed on nation-wide stock exchanges due to shortage

of time in complying with the listing norms of nation-wide

stock exchanges. Keeping in view their concerns and

interest of shareholders of such companies, the Board

decided to give time of eighteen months, within which such

companies may obtain listing subject to compliance with

the listing requirements of the nation-wide stock exchanges

and till such listing the shares of exclusively listed

companies will remain on the dissemination board of

nation-wide stock exchanges.

e. Amendments to SEBI (Delisting of Equity Shares)

Regulations, 2009 –

While discussing the minutes of the 157th Meeting of the

Board held on November 19, 2014, it was decided to add a

provision that if the acquirer and the Merchant Banker are

able to demonstrate that they have contacted all the public

shareholders, about the offer in the manner prescribed,

then the condition of mandatory participation of 25% of the

public shareholders holding shares in demat mode would

not be applicable.

ACCESS TO GLOBAL CAPITAL

MARKETS MADE EASIER

The Central Government through Ministry of Finance

(Department of Economic Affairs) notified on dated 21st

October, 2014 the New Depository Receipts Scheme,2014

made applicable from December 15, 2014. Depository

Receipts may be issued on the back of all securities as

defined under the Securities Contract Regulation Act, 1956.

Issuance of unsponsored Depository Receipts allowed. New

Depository Receipts Scheme is largely based on the

recommendations made by the Sahoo Committee.

INTRODUCTION

Depository Receipts (DRs) in India were governed by the

Foreign Currency Convertible Bonds and Ordinary Shares

(Through Depositary Receipt Mechanism) Scheme, 1993

(“1993 Scheme”) as amended from time to time. On

October 21, 2014, the Ministry of Finance (“MoF”) notified

(“Notification”), the Depository Receipts Scheme, 2014

(“New Scheme”) by virtue of which issuance of DRs has

been taken out of the 1993 Scheme and is now regulated by

the New Scheme. The New Scheme has come into effect

from December 15, 2014.

The New Scheme is based on the recommendations of the

Sahoo Committee, which under the chairmanship of Mr.

M.S. Sahoo undertook a comprehensive review of the 1993

Scheme and proposed significant deregulation and

rationalisation of the manner in which Indian companies

could tap global capital markets.

FRAMEWORK OF THE NEW SCHEME

Broadly, the Scheme has been introduced with the intention

to provide the Indian firms, domestic investors and foreign

investors freedom to access financial markets within the

prevalent foreign investment regime in India. Therefore, the

provisions of the New Scheme are aimed at bringing the DR

route at par with any other foreign investment.

Following are the key provisions introduced under the New

Scheme:

I. Requirement for approval for issuance of DR - As per the

1993 Scheme, for issuance of DRs, prior approval of the

Ministry of Finance (MoF) was required. The New Scheme

has done away with this requirement. However, the issue

and transfer of permissible securities to a person resident

outside India to form the underlying for DRs would still

require approvals, if any, under the Foreign Exchange

Management Act, 1999 (“FEMA”).

II. Eligibility Criteria-

a. For Issuer of Underlying Securities - Under the New

Scheme, any Indian company, listed or unlisted, private or

public or any other issuer or person holding permissible

securities is eligible to issue or transfer permissible

securities to a foreign depository for the purpose of

issuance of DRs. Except for persons barred from accessing

international capital markets, no restrictions as such have

been set out under the New Scheme as regards Indian

issuer of securities.

b. For Issuer of DRs - As per the New Scheme, a regulated

entity having the legal capacity to issue DRs i.e. a person

which is not prohibited from acquiring permissible

securities; is regulated in a permissible jurisdiction; and has

the legal capacity to issue depository receipts in the

permissible jurisdiction, may issue DRs. As per the 1993

Scheme, only a bank authorized by the issuer of underlying

securities could issue DRs

c. For Custodian of DRs - As per the New Scheme, any

regulated entity having legal capacity for underlying

securities can act as the custodian. A domestic custodian

has been defined to include a custodian of securities, an

Indian depository, a depository participant, or a bank and

having permission from SEBI to provide services as

16


custodian. Under the 1993 Scheme, only a banking

institution could be a domestic custodian of DRs.

III. Kinds of issue of DRs - Under the New Scheme, both the

category i.e. sponsored and unsponsored DRs can be issued

on the back of permissible securities. Unsponsored DRs can

be issued on the back of listed permissible securities only if

two conditions are fulfilled viz., (i) DRs give the holder the

right to issue voting instructions and (ii) the DRs are listed

on an international exchange. International exchange as per

the New Scheme has been defined to mean a platform for

trading of depository receipts in a permissible jurisdiction is

accessible to the public for trading and provides pre-trade

and post-trade transparency to the public.

IV. Permissible Securities - As per the 1993 Scheme, DRs

could be issued only on the back of equity shares of Indian

companies and were not required to be in dematerialized

form. Further, the 1993 Scheme suggested that DRs could

be issued on the back of foreign currency convertible bonds

(“FCCBs”) as well. As per the New Scheme, DRs can be

issued on the back of any permissible securities

(“Permissible Securities”). Permissible Securities has been

defined to include securities as defined in the Securities

Contracts (Regulation) Act, 1956 (“SCRA”) whether issued

by a company, mutual fund, government or any other issuer

and similar instruments issued by private companies. All

permissible securities are required to be in dematerialized

form before they can be used as underlying for a DR issue.

V. Jurisdictions for Issue of DRs - As per the 1993 Scheme, a

listed company could issue DRs in any jurisdiction across the

world for listed companies and unlisted companies could

issue DRs in either FATF or IOSCO compliant jurisdictions. As

per the New Scheme, a company, whether listed or

unlisted, can issue shares for issue of DRs only in

permissible jurisdictions (“Permissible Jurisdictions”). As per

the New Scheme, a Permissible Jurisdiction would be a

foreign jurisdiction that satisfies twin requirements i.e. the

foreign jurisdiction is a member of the FATF and the

securities regulator of that jurisdiction is a member of

IOSCO. The New Scheme provides a list of 34 permissible

jurisdictions as on date of the Notification.

VI. Pricing - The New Scheme does not prescribe any

specific pricing norms for issuance of DRs. The only

restriction imposed under the New Scheme is that

Permissible Securities shall not be issued to a foreign

depository at a price less than the price applicable to a

corresponding mode of issue of such securities to domestic

investors under applicable laws. In accordance with FEMA,

pricing of ADR/GDR issues shall be done as per guidelines

issued by the Reserve Bank of India (“RBI”).For the purpose

of issue of depository receipts for listed companies, the

minimum pricing norms as applicable under the SEBI

Guidelines shall be complied with.

VII. End Use Restrictions – Partial end- use restrictions were

specifically imposed on utilization of funds rose from

issuance of DRs, these funds being prohibited from being

deployed or invested in real estate and stock market. The

New Scheme does not provide for any end-use restrictions

on the deployment of proceeds from issuance of DRs.

Although, there are no restrictions on deployment of

proceeds from issue of DR, restrictions as applicable under

FEMA shall still be applicable.

VIII. Public Shareholding and Voting Rights - As per the

New Scheme, the voting rights should be exercised by the

foreign depository in respect of underlying securities; the

depository may take instructions from DR holders. If the DR

holders have the right to instruct the depository to vote on

their behalf, they would have the same obligations as if it is

the holder of the underlying equity shares under the SEBI

(Substantial Acquisition of Shares and Takeovers)

Regulations, 2011(“Takeover Code”). Also, shares of a

company underlying the DRs shall form part of ‘public

shareholding’ (i) if the holder of the securities has the right

to issue voting instructions and (ii) such DRs are listed on an

international stock exchange. The New Scheme has

attempted to bring this provision in line with the Takeover

Code which includes all depository receipts carrying an

entitlement to exercise voting rights in the target company

within the definition of ‘shares’ for the purpose of the

Takeover Code. Therefore, this would enable the DRs with

voting rights to count for public shareholding as well as

have obligations under the Takeover Code.

IX. Market Abuse - Sahoo Committee was conscious of the

risk that DR Route may expose the Indian securities market

to potential market abuse and money laundering. No

explicit provision as the authority which is to be approached

in case of market abuse was provided under the 1993

Scheme. To put an oversight mechanism, New Scheme

categorically provides that use of DRs or market of DRs

which has potential to cause or has caused abuse of

securities market in India shall be dealt with by SEBI.

Published By: MCC Chamber of Commerce & Industry, 15B Hemanta Basu Sarani, Kolkata – 700 001

Tel.: 91 33 2248 1502/6329/3123/2262 5070-74, Fax: 91 33 2248 8657, Email: [email protected], [email protected], Website: mcciorg.com

Compiled by: Ashok Pareek, Chairman, Standing Committee on Capital Market, MCCI; Assisted by: Piyush Khaitan, Khushboo Jain

For Private Circulation only

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