Zee Business Exclusive: SEBI board set to clear buyback, disclosure and governance norms for MIIs

SEBI board is meeting on Tuesday to discuss and clear significant market regulations. As per sources, the board is expected to discuss buyback regulations, regulations related to disclosure of material event and information, governance for Market Infrastructure Institutions (MIIs) and introduction of blue bonds and review of Green bond regulations.   

As per sources, the most-awaited review of buy back regulations may get clearance from the board. In a consultation paper SEBI working group has suggested to reduce the interval of buyback to twice a year, but through tender offer route only. However, the same has to be cleared through special resolution. It was also suggested to enhance the quantum of the buyback from existing 25% to 40% of paid up capital and free reserves, if tender offer route is opted. Enhancement of quantum for buyback will also require Ministry of Corporate Affairs approval. SEBI committee had suggested phasing out of Exchange route by 2025 for buyback of shares. The significant change for investors will be SEBI’s suggestion to Ministry of Finance to deduct tax in the hand of shareholders instead of company. As the tax burden is on the company and not on the exiting shareholders, including promoters, such taxes are paid from the free reserves of the company.   

As per people provy to the matter, SEBI board will also discuss streamlining of disclosure requirements for material events under LODR regulations. Last month, SEBI had floated a discussion paper on the same. It had suggested materiality threshold for listed companies based on the turnover, net worth and profitability and loss of the company. It was also suggested to reduce the time line for reporting of material events and information from 24 hours to 12 hours. Consultation paper also envisaged that top 250 listed companies should issue a clarification on the media reports. Paper also suggested disclosure of all the events like action taken or initiated  by any regulatory, statutory, enforcement or judicial authority against the listed entity. Actions like suspension, imposition of fine/penalty, settlement  of proceedings, debarment, disqualification, closure of operations, sanctions imposed, warning or caution, search or seizure, inspection, investigation into affairs of the entity, etc should be disclosed.   

Sources say, board of the capital market regulator is expected to discuss the report of G Mahalingam Committee on Strengthening Governance of Market Infrastructure Institutions. The committee had suggested many reforms for MIIs. For example, it suggested that the functions of MIIs should  be  categorized  into  three  verticals —  Critical Operations, Regulatory, Compliance and Risk  Management and  other functions including Business Development. The KMPs heading the functions under the first Critical Operations,  Regulatory, Compliance  and  Risk  Management verticals should be at par in hierarchy with the KMPs heading the third vertical. It also suggested two third of directors to be public interest directors. For more transparency, the committee was of the view that MIIs should make their board meetings agenda public after the meetings. Minimum 25% and maximum 50% of variable for Key Managerial personal was also suggested. 

Committee also raised a significant question about conflicting objectives of MIIs. It noted: “The business model of an MII  is  thus  inherently  conflicting. Policy  makers  would  need  to  ponder  over  the appropriateness of this model and to perhaps look for alternatives which would ensure a clean separation of the two roles now vested with the MIIs. This would necessitate creation  of  separate institutions  to  take  on  these vastly different roles and it could possibly pave the way for greater competition in the commercial role so that, ultimately, the investors stand to benefit.”   

Board may also discuss and clear the review of green bond regulations. Including widening the scope of Green Bond route for pollution control and circular economy and also scope for blue bonds for oceanic resource mining and sustainable fishing, off shore wind energy and investing in technologies to rejuvenate corals.   

Board is also expected to clear some regulations related to mutual funds and AIFs.