Sebi approves tighter conflict code, easier FPI settlement plan

Mumbai: The Securities and Exchange Board of India (Sebi) Monday approved new conflict-of-interest norms that would apply to its chair, and sought to ease settlement rules to draw overseas funds - currently dumping local stock - to Mumbai-listed shares. Tougher conflict-of- interest norms for Sebi board members and employees in insider trading rules would now be sent to the Centre for its consideration and publication so that the amended rules are legally binding on the current and future government appointees to the regulator. Separately, Sebi board approval for the net settlement of cash market trades for foreign portfolio investors (FPI) is expected to lower costs. An expert panel was formed by Sebi chief Tuhin Kanta Pandey after his predecessor, Madhabi Puri Buch, faced significant allegations, including conflict of interest. Classifying the Sebi chairperson and whole-time members as 'insiders' will subject them to the same legal trading restrictions as employees, ensuring they can't trade while possessing price-sensitive information. Sebi said it would revise its code on conflict of interest for members of the board for voluntary adoption. In the meantime, it would also refer the recommendations of the expert panel to the central government so that it gets legal sanctity. Under the Sebi Act, the government is empowered to make such rules.“As the central government is the appointing authority and prescribes the terms and conditions of service of board members, the central government will be the appropriate authority to take a decision in this matter,” Sebi said in a statement after the board meeting. The regulator said, top Sebi officials including the chairperson, would have to publicly disclose their assets and liabilities, in line with government norms that mandate officials to declare their immovable properties to their respective departments at the time of joining. A digital recusal process would also be put in place to record disclosure of conflicted relationships, Sebi said.‘FOR THE FPIS’ Separately, Sebi also eased transaction settlement rules for foreign portfolio investors, allowing them to settle the net value of their cash market trades. Currently required to settle trades on a gross basis, FPIs often face higher funding and foreign exchange costs. The shift to net settlement — where buy and sell obligations can be offset — will reduce capital requirements, particularly during high-volume events such as index rebalancing. “The proposal is expected to reduce the cost of funding for FPIs, particularly on index rebalancing days, when outright purchases and sales occur in incoming and outgoing index constituents, respectively,” Sebi said. “Since non-outright transactions will continue to be confirmed and settled on a gross basis, concerns relating to potential market influence arising from large FPI positions or speculative trading activity are allayed,” it said. An outright transaction is a one-way trade where an investor either buys or sells, but not both, in a particular security in a settlement cycle. Sebi also revised its “fit and proper” criteria for market intermediaries such as stock brokers, removing automatic disqualification for pending criminal cases while tightening norms for convictions involving economic offences. The regulator also introduced relief measures for Alternative Investment Funds (AIFs) nearing closure. Funds will now be allowed to retain liquidation proceeds beyond their tenure under specific conditions such as pending litigation or tax liabilities. A new category of ‘inoperative funds’ will allow such AIFs to operate with reduced compliance requirements until they formally surrender their licences. Further, Sebi sought to deepen retail participation in social impact funds by slashing the minimum investment threshold from Rs 2 lakh to Rs 1,000. The Sebi board also approval a proposal to allow InvITs (Infrastructure investment trusts) to continue holding investments in SPVs (special purpose vehicles) after a project’s concession period ends, widen the pool of liquid mutual funds for parking surplus funds, and permitting privately listed InvITs to invest up to 10% of assets in under-construction or greenfield projects.