Sebi nod for universal exchanges from October 2018

The Securities and Exchange Board of India (Sebi) on Thursday said exchanges would be allowed to deal in both equities and commodities from October 2018, a move that would benefit the National Stock Exchange (NSE), the BSE, and the Multi Commodity Exchange (MCX), which currently trade in either of the two categories.

The capital markets regulator also announced easier access norms for foreign investors and capped cross-holdings in credit rating agencies (CRAs) as well as mutual funds (MFs) to safeguard investors’ interest.

The concept of universal exchanges was in the works since the commodities regulator, Forward Markets Commission (FMC), was merged with Sebi in 2015. Earlier this year, Sebi allowed single intermediaries, such as brokers, to deal in both commodities and equities under a single licence. Sebi said the steps needed for allowing universal licence were being put in place and the amended Stock Exchange and Clearing Corporation (SECC) regulations would become effective from October 1, 2018.

Exchanges welcomed Sebi’s decision, saying they would venture into new segments. The BSE, which currently offers trading in equities and currency derivatives, said it had “geared up itself for long” to provide new facilities. Shares of the BSE gained 3 per cent, while those of the MCX declined 1 per cent on Thursday, even though Sebi’s announcement came after the market hours.

Market players said the move would increase competition in the commodities trading space with the foray of stronger players such as the NSE and the BSE. Vikram Limaye, managing director and chief executive officer of the NSE, said, “The NSE will certainly get into commodities once Sebi approves exchanges to get into all asset classes. We will await further guidelines from Sebi in this regard.”

Addressing the media after the board meeting, Ajay Tyagi, chairman, Sebi, said the regulator’s approval would be needed prior to launching trading in new segments.

The Sebi board also put a 10 per cent cap on cross-shareholding and curbs on board positions for both MFs and CRAs. In the case of MFs, a sponsor will be allowed to hold above 10 per cent in only one asset management company (AMC). The move will hit UTI MF, which has four sponsors, including State Bank of India, Life Insurance Corporation of India, Bank of Baroda, and Punjab National Bank. Each of them holds an 18.5 per cent stake in UTI MF and also owns MF subsidiaries. In the past, UTI MF has struggled to address its shareholding issue, with each of the stakeholders being adamant on the dilution.

Tyagi said MFs would get one year to bring down their shareholding after Sebi notifies the new norms.

Experts said the shareholding cap was to avoid conflict of interests. In June, Crisil had bought an 8.8 per cent stake in rival CARE Ratings. The acquisition had triggered talks of potential conflict and anti-competitive practice.

Sebi also increased the networth criteria for CRAs from Rs 5 crore to Rs 25 crore. The regulator also asked CRAs to segregate their activities other than rating financial instruments into a separate legal entity to focus on core business.

Meanwhile, the Sebi board deferred a decision on bank default disclosure norms. “There was a detailed discussion on the subject. It is a good concept, but there are some implementation issues that need to be looked at,” said Tyagi.

In August, Sebi had mandated listed entities to disclose within 24 hours any kind of bank loan default. However, it withdrew the circular in October after the market feedback.

Providing relaxations to companies with high promoter shareholdings, Sebi allowed two new routes for dilution. The regulator said companies could dilute up to 2 per cent by way of qualified institutional placements (QIPs) and block deals. The move will help new listed companies such as Avenue Supermarts, where promoter holding is more than the threshold limit of 75 per cent. It will also benefit the state-owned entities, which have to comply with the minimum public shareholding norms by August 2018. QIPs and block deals would offer “quick solution”, said Sebi.

Sebi also relaxed the entry norms for foreign portfolio investors (FPIs). Tyagi said the easier norms were to offset the restrictions imposed on FPIs taking the participatory note (p-note) route.

Among other measures, Sebi lowered the investment threshold for real estate investment trusts (REITs) to 50 per cent. It also allowed trading in security receipts issued by asset reconstruction companies (ARCs). Sebi said it would soon float a new discussion paper on investment advisers, which would propose measures to separate investment advice and distribution of investment products.

On the earnings leak matter, Tyagi said avoiding the misuse of price-sensitive information was a critical issue that Sebi was dealing. Commenting on the order against Axis Bank, the Sebi chief said the regulator was conducting a separate inquiry into the leaks. Tyagi said there were more companies under investigation.