The CAM Markets team can be reached at cam.mumbai@cyrilshroff.com

Current Issues in the Mutual Funds Industry

Things indeed have been less than perfect for the mutual funds industry as a result of economic slowdown as well as specific events, key among which is the value deterioration across a number of industries and asset classes. The onset of COVID-19 has served to exponentially compound these problems. The most recent victim of the current situation is Franklin Templeton India, which announced its decision to wind-up six debt schemes, citing this as the only viable option to preserve value for unitholders and enable an orderly and equitable exit for all investors.

AMFI, the mutual fund industry body, has tried to assure investors that majority of fixed income AUM is invested in superior credit quality securities and schemes have appropriate liquidity to ensure normal operations. Mutual funds are not one homogenous mass and separate schemes have different investment strategy and underlying assets, but the supervening effect of the ongoing pandemic has created such redemption pressures and corresponding lack of cash flows, that the mutual fund industry has been dealt a body blow by the ensuing demand-supply liquidity mismatch.
Continue Reading Current Issues in the Mutual Funds Industry

SEBI General Order 2020

Markets regulator Securities and Exchange Board of India (Sebi) has recently issued a General Order on issuing observations on offer documents when there are pending regulatory actions, superseding a 2006 general order on the same subject. The General Order 1 of 2020, which was issued on February 5, 2020, sets out the circumstances under which SEBI can withhold observations on draft offer documents (companies cannot launch issues until SEBI provides observations).

We discuss the SEBI order, its implications, and whether this is a step in the right direction for a disclosure-oriented securities regime.
Continue Reading SEBI General Order 2020: What it means for cos, investors & overall capital markets’ efficiency

Mutual Funds and Alternative Investments - Stewardship Code

Introduction

On December 24, 2019, Securities and Exchange Board of India (“SEBI”) released a circular setting up a stewardship code for Asset Management Companies (“AMCs”), Mutual Funds (“MFs”) and all the categories of Alternative Investment Funds (“AIFs”) investing in listed Indian companies (“Stewardship Code” or “Code”). In keeping with global trends, SEBI has made it necessary for the power wielding cash-rich institutional investors, to act in accordance with the responsibilities that invariably accompany and behoove such powers and formulate a policy adopting the principles enshrined in the Code.

The Stewardship Code prescribes certain principles which, aim at enhancing the responsibilities of the AMCs/ AIFs to protect the interests of their investors/beneficiaries. The requirements pertaining to the Stewardship Code shall come into effect on April 1, 2020.
Continue Reading Being Responsible Corporate Citizens – How Mutual Funds and Alternative Investment Funds will Rise Up to the Stewardship code

Revised norms for foreign portfolio investors SEBI

The norms surrounding foreign portfolio investors have undergone continuous changes and tweaks since liberalisation. The framework introduced by Central Government was first consolidated and expanded upon by the Securities and Exchange Board of India (SEBI) under the SEBI (Foreign Institutional Investors) Regulations, 1995 (1995 Regulations).

A little under a decade later, in 2014, SEBI took steps to consolidate the categories of investors previously accessing Indian capital markets – i.e., foreign institutional investors, sub-accounts and qualified foreign investors – into a single class known as ‘foreign portfolio investors’ (FPIs). SEBI also delegated the responsibility of registering such FPIs to designated depository participants (DDPs). Multiple questions arising out of the new regime were subsequently answered by SEBI in a series of frequently asked questions (FAQs), updated from time to time. The 2014 Regulations also incorporated concepts such as opaque structures and a scope of investor group, which did not find a mention in the 1995 Regulations but were introduced through notifications and instructions from SEBI.

Five years later, SEBI has issued revised norms for FPIs in terms of the SEBI (Foreign Portfolio Investors) Regulations, 2019 (2019 Regulations) with a number of changes (as suggested by the committee headed by Mr. HR Khan), some to concepts dating back to the regime under the 1995 Regulations. The 2019 Regulations also consolidate the extensive guidance and requirements prescribed by SEBI by way of amendments to the 2014 Regulations as well as circulars and FAQs issued thereunder.

This post discusses some of the key aspects of the 2019 Regulations.
Continue Reading Revised Norms for FPIs: New Wine in a New Bottle

Insider Trading Hotline SEBI - Informant Mechanism

In our previous blog post, dated June 12, 2019, we discussed the Securities Exchange Board of India’s (SEBI) efforts to institutionalise an informant mechanism for insider trading, through its discussion paper released in June 2019 (Discussion Paper).

The regulator has now formalised this into law through a recent amendment to the Insider Trading Regulations, which came after a SEBI board meeting approved the informant mechanism scheme on August 21 of last month. Interestingly, while the publicly available agenda of the SEBI board meeting states that it had received comments from certain entities on the Discussion Paper, these comments are not publicly available and are stated to have been excised for reasons of confidentiality.
Continue Reading SEBI launches a new hotline: Introduction of the Informant Mechanism into the Insider Trading Regulations

 Securities Law Enforcement - Calibrating the Discipline of Penalty Imposition

Equipped with broad statutory powers, the Securities Exchange Board of India (SEBI) has been hard at work for the past 30 years, shouldering the herculean task of managing the Indian securities market, through both regulation and enforcement. Naturally, to help SEBI respond to and deal with evolving challenges, its powers, specifically those under the Securities Contracts (Regulation) Act, 1956 (SCRA) and the SEBI Act, 1992 (SEBI Act), have been continuously at play, allowing it to mete out a wide range of penalties, both monetary and substantive. SEBI’s exercise of such powers, in its capacity as a quasi-judicial authority, has increasingly become a subject-matter of appellate interest, on questions of both jurisdictional remit and proportionality of penal action.
Continue Reading Securities Law Enforcement: Calibrating the Discipline of Penalty Imposition

Superior Orders Defence - Corporate Fraud

The past few years have seen a marked increase in regulatory investigations and enforcement action into fraud. This increased scrutiny brings into focus the liability of the individuals involved in the fraud and the extent to which such individuals are liable.

Typically, when the company has committed fraud, persons who are responsible for the actions of the company – the ‘directing mind and will– are held liable. In contrast, where a fraud is committed on the company and/or its shareholders, it involves identifying both, the officers at whose behest, or for whose benefit, such actions were undertaken, as well as persons who executed the fraud. 
Continue Reading Corporate India, Individual Liability and the Relevance of the Superior Orders Defence

SEBI’s Latest Discussion Paper on Insider Trading Regulations

Prosecuting insider trading cases has always been a challenge for the Securities Exchange Board of India (SEBI). Primary evidence is difficult to come by, which impacts success rates as well as investigation timelines.

On June 10, 2019, SEBI released a discussion paper (Discussion Paper) proposing amendments to the SEBI (Prohibition of Insider Trading) Regulations, 2015 (Insider Trading Regulations) to establish systems and processes (both within listed companies, as well as, at SEBI) that incentivise individuals to report insider trading violations, if they come to their knowledge. In terms of the Discussion Paper, the informant may be rewarded up to INR 1 crore (approx. USD 150,000) if SEBI undertakes disgorgement of at least INR 5 crores (approx. USD 0.72 million) as a result of any action taken on the basis of true, credible and original information.
Continue Reading Bounty Hunting in Corporate India – Understanding SEBI’s Latest Discussion Paper on the Insider Trading Regulations

RBI’s Fintech Sandbox Proposal Startups

Technological innovation in the financial space, popularly known as ‘fintech’, has been at the forefront of regulatory thinking in recent times and is widely considered to be the panacea to the thorny issues of financial inclusion and ease of access to financial products/solutions, etc.

In 2018, the inter-regulatory Working Group (WG) set up by the Reserve Bank of India (RBI) to review the granular aspects of fintech and its implications, released a report being the ‘Report of the Working Group on FinTech and Digital banking’. One of the WG’s key recommendations was the introduction of an appropriate framework for the creation of a regulatory sandbox (RS) where the RBI could provide the requisite regulatory guidance to test products in a controlled environment.
Continue Reading Learning by Doing? The RBI’s Fintech Sandbox Proposal

Prohibition of Insider Trading Regulations 2015 in India , Amendments

The Securities and Exchange Board of India (SEBI) ended the year with a bang by issuing a number of notifications on December 31, including the SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2018 (PIT Amendment Regulations). The PIT Amendment Regulations come into force on April 1, 2019 and will have significant impact on the manner in which listed companies and intermediaries navigate the market conduct framework.
Continue Reading A New Year Ushers in the Insider Trading Regulations, 2015 Version 2.0