Mint Explainer: What Sebi decided at its first board meeting under the new chief

The Securities and Exchange Board of India (Sebi) also decided to form a high-level committee to review conflict-of-interest norms for its members and officials, and deferred the implementation of certain amendments to its regulations after conducting an internal review.

Mint delves into each decision Sebi took at its 209th board meeting and Pandey’s rationale for each at the post-meeting briefing.

Higher FPI disclosure threshold

Sebi doubled the threshold for mandatory granular disclosures by FPIs from ₹25,000 crore to ₹50,000 crore in equity assets under management (AUM). The decision was prompted by an increase in cash equity market trading volumes between FY23 (when these limits were set) and the current fiscal year, FY25.

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“FPIs must decide their investment direction, while Sebi remains committed to providing a supportive regulatory environment. We do not want to scare anyone away. We want to engage people with capital and make markets strong”, Pandey said.

Mint reported on 3 December that one-fifth to nearly two-fifths of FPI outflows could be attributed to Sebi’s August 2023 circular.

High-level committee to review conflict-of-interest rules

In a significant move, Sebi decided to constitute a high-level committee to conduct a comprehensive review of provisions relating to conflicts of interest, disclosures pertaining to property, investments, liabilities and related matters concerning its members and officials.

At the media briefing, Pandey emphasised the need to build public trust in the regulator. “People, both in our organisation and outside, need to be clear that things are fine, and there is no tendency to hide. We don’t want to do that,” he said. He added that the high-level committee would look to build a framework to clarify everything that needs to be disclosed, and how.

He also said the committee would examine if Sebi officials’ recusals from situations involving conflicts of interest could be made public.

Easier compliance for category-II AIFs

The Sebi board eased compliance rules for category-II AIFs by allowing them to invest in certain listed debt securities, treating these on par with unlisted securities for meeting investment conditions.

Currently, these AIFs are required to hold a majority of their investments in unlisted securities. The recent changes to Sebi’s listing and disclosure regulations require that any entity that has issued debt securities can issue fresh debt only in listed form.

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“There was apprehension from the industry that adequate unlisted debt may not be available and the industry requested for an alternative,” Pandey said. “I think it is also a means of compliance, a means of business for the AIF industry,” he added.

Brijesh Damodaran, managing partner at venture capital firm Auxano Capital, said this move could make portfolios flexible and help AIFs maintain compliance with unlisted investment thresholds. “The flexibility enables AIFs to continue meeting regulatory norms without being penalised due to external changes in the unlisted debt market,” he said.

Other experts including Aditya Sesh, founder and managing director of Basiz Fund Services, said the provision could provide a much-needed avenue for companies to raise capital from non-institutional players.

Changes to fee structure for RIAs and RAs

The industry has long expressed concerns about certain fee-related rules, particularly one that allows RIAs to collect fees for only up to six months in advance (three months for RAs). To address those concerns, Sebi decided to allow RIA and RAs to charge fees up to a year in advance.

Pandey clarified that the rule applies only to individuals and Hindu Undivided Families (HUFs), and not institutional or accredited investors. “Accredited and institutional investors are very well in a position to negotiate fees and have contracts. This move to extend to a year for individuals and HUFs is sensible in terms of the long-term advice that they would require,” he said.

Amendments deferred

On 18 December 2024 the board had approved rules for merchant bankers, debenture trustees, and custodians that allowed them to carry out other regulated activities as a separate legal entity after obtaining registration/confirmation from the respective regulatory authority within two years of the amended regulations being notified.

However, after conducting an internal review of these amendments, Sebi has now deferred them until further notice while it explores alternatives.

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“Everything we do requires cost. So, we will explore if an alternative approach exists to ease business, and if risk can be mitigated otherwise. Level playing field is another aspect. RBI-regulated and non-regulated banks have different rules. We have to be a little more nuanced and clearer about regulatory changes. Apart from consultative mechanism we must also be mindful of the burden on the industry,” Pandey said.

Changes to appointment rules for market infrastructure institutions

To strengthen the governance of market infrastructure institutions (MIIs), Sebi’s board approved several key changes concerning the appointment of public interest directors (PIDs) and key management personnel (KMPs).

The board mandated greater transparency in situations when a PID is not re-appointed. If an MII’s governing board decides against reappointing a PID after their initial term, it must now formally record the reason and communicate it to Sebi.

Also, PIDs will no longer have an enforced cooling-off period (currently one year) when switching between competing MIIs.

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