The SEBI board also approved merging different classes of investors such as FIIs, their Sub Accounts and Qualified Foreign Investors (QFIs) into a new category.
Mumbai: In a wide-ranging overhaul of rules to make India an easier, safer and attractive investment destination, SEBI on Tuesday unveiled a new set of streamlined entry norms for foreign investors, while putting in place checks against any wrongdoings by the company promoters.
The board of capital markets regulatory authority also paved way for direct listing of start-ups and SMEs on the stock exchanges without the requirement of an IPO and approved a new set of rules for angel investors to encourage the spirit of entrepreneurship in the country.
About a dozen of these steps, which were approved by the board of SEBI (Securities and Exchange Board of India) in a meeting here that lasted for over five hours, come at a time when Indian markets have been going through turbulent times amid concerns over falling value of and huge outflows of overseas funds from the country.
With regard to the foreign investors, SEBI's board approved making their registration and compliance requirements much simpler and easier, especially for government entities and large investors like insurers, asset management companies and university funds from abroad.
The board also approved merging different classes of investors such as FIIs, their Sub Accounts and Qualified Foreign Investors (QFIs) into a new category, Foreign Portfolio Investors (FPIs), to put in place a simplified and uniform set of entry norms for them.
The decisions were taken after a discussion on a report of the 'Committee on Rationalisation of Investment Routes and Monitoring of Foreign Portfolio Investments' under the Chairmanship of former Cabinet Secretary K M Chandrasekhar.
In another major step, SEBI has decided to define all investments of up to 10 percent by any single investor or group as 'portfolio investment', while investments beyond that would be considered as Foreign Direct Investment (FDI).
SEBI has also approved doing away with the current practice of FIIs and their sub-accounts requiring a prior direct registration to operate in Indian markets.
The decisions were welcomed by market participants.
Sources said that SEBI board was also apprised of the status report on high-profile matters like Sahara refund case and the minimum public shareholding norms.
The deadline for private sector companies to achieve minimum 25 percent public holding ended on June 3 and SEBI took interim action against 105 entities for non-compliance.
The deadline for public sector companies to achieve minimum 10 percent public shareholding ends on August 8.
To safeguard the interest of public shareholders, the board also approved making it mandatory for the companies to buyback at least 50 percent of their repurchase offers.
Besides, the companies would have to complete their buyback offers within six months, from 12 months currently, while those not being able to meet the target would be barred from launching another offer for a period of one year.
The measures, which also include companies being asked to keep 25 percent of proposed buyback offer amounts in an esscrow account, are aimed at averting the promoters from making non-serious offers to wrongly influence stock prices.
In another major decision, the board approved measures for making transparent the share allotment to certain investors on preferential basis and said that the payments for such issuances would need to be made from their own bank accounts.
There have been concerns that promoters might use the preferential allotment route through front entities and thus hurt the interest of public shareholders.
SEBI said that it would be necessary to do preferential allotments through demat accounts, a move that would check flow of illicit funds. The identity of ultimate beneficial owner of these shares would also need to be disclosed.
The companies would also be required to make public the number of shares purchased and the amount utilised on a daily basis, while those failing to meet the buyback target would not be allowed to come up with another offer for one year.
With regard to mutual funds, SEBI board allowed them to trade directly on the debt segment of stock exchanges.
Besides, MF distributors will be allowed to access the infrastructure of bourses and a single Self Regulatory Organisation (SRO) would be put in place for their oversight.
To encourage entrepreneurship and help new and small companies access the markets for funds, SEBI also allowed start-ups and SMEs to get listed on bourses without making an IPO and decided to put in place new rules for angel investors.
To ensure that investments are genuine, angel investors would be allowed to put in their money only firms incorporated in India and that are not more than three years old.
SEBI also unveiled measures to give a boost to the newly introduced separate debt segments of bourses, by easing entry norms and waiving off deposit and annual fee requirements for intermediaries already registered in other segments.
Regarding the foreign investors, SEBI has accepted most of the recommendations made by the Chandrasekhar committee and has decided to refer those matters requiring the government approval to the Finance Ministry.
Sources said that implementation of some measures would require some changes in the provisions of the Prevention of Money Laundering Act, while SEBI has also proposed certain changes to clarify taxation responsibility in the new regime.
SEBI has decided to adopt a risk-based KYC (Know Your Client) approach in dealing with the overseas investors.
Accordingly, the FPIs would be categorised into three categories -- low-risk (for multi-lateral agencies, government and other sovereign entities), moderate risk (for banks, asset management companies, investment trusts, insurers, pension funds and university funds) and high-risk (all the FPIs not included in the first two categories).
The KYC norms would be simplest for the first class and most stringent for the third category. Besides, the third-category FPIs would not be allowed to issue Participatory Notes, an instrument often criticised for being misused for alleged money laundering activities.
The requirement for submission of personal identification documents of designated officials of the FPIs would also be done away with for the first two categories.
SEBI was of the view that most of the proposals made by this committee were well thought out and they have also been welcomed by the market entities and government departments.
Earlier this month, Finance Minister P Chidambaram had also termed the recommendations as 'positive'.