CAM Markets Team

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

The Sound of SEBI’s Silence Will the Factorial Order Change the Rules of the Game

Last month, the Securities Appellate Tribunal (SAT) passed an order in favour of Factorial Master Fund[1] (Factorial). This overturned the order of the SEBI Whole Time Member who had held that Factorial had contravened the provisions of the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations) by trading in the securities of L&T Finance Holdings Limited (LTFH), while in possession of unpublished price sensitive information (UPSI).Continue Reading The Sound of SEBI’s Silence: Will the Factorial Order Change the Rules of the Game?

One Size Fits All Regulating Peer-To-Peer Lending Platforms

Technological innovation is the new normal in the financial services sector. The evolution of every aspect of this industry in the past few years has been truly transformational, whether it is access to funds, demand creation/aggregation or even payment systems. The inception and growth of peer-to-peer (P2P) lending platforms in India is one such example. P2P platforms effectively function as an online marketplace for lenders and borrowers, for a commission. A need for regulatory oversight was considered by the Reserve Bank of India (RBI), given the recent rise in the number of such operators and their integration into the financial services sector.

The RBI outlined its proposal to regulate such platforms in its consultation paper issued last year. Following notification on August 24, 2017 categorising P2P lending platforms as Non-Banking Financial Companies (NBFCs), the RBI has finally issued its widely anticipated master directions on October 04, 2017 (Master Directions).Continue Reading One Size Fits All? Regulating Peer-To-Peer Lending Platforms

Offshore Derivative Instruments (ODI) have been a focal point for the Government in India and over the years, the regulatory boundaries of doing business in this space have been re-aligned by the Securities and Exchange Board of India (SEBI), quite frequently.

As a part of SEBI’s efforts towards increasing transparency and accountability in the ODI space as well as encouraging direct investments through the foreign portfolio investment (FPI) route, the SEBI Consultation Paper of May 29, 2017, titled ‘On streamlining the process of monitoring of Offshore Derivative Instruments (ODIs)/ Participatory Notes (PNs)’, proposed prohibiting the issuance of ODIs against derivatives, except for those used for hedging. SEBI had invited public comments on the matter until June 12, 2017. Thereafter, at a board meeting on June 21, 2017, the SEBI board approved this proposal, with the minutes specifically stating that “The Board has decided to prohibit ODIs from being issued against derivatives, except those which are used for hedging purposes. SEBI will issue a circular in this regard.”

The question now is whether this is the right approach to bringing down volumes in speculative trades being undertaken in the derivatives market.Continue Reading SEBI Circular on ODIs: Step too Far or the Right Balance?

India has historically been an economy driven by cash. With unique population demographics and modest literacy levels, it is a difficult market to “digitalise”. However, over the past decade, urban India has seen a significant rise in the use of pre-paid cards, mobile banking, internet wallets and e-payment instruments, in their various guises. They have created a relevant market of their own.

However, in the past few months, and as a consequence of the recent demonetisation, India has been witnessing a new wave of financial technology, with the introduction of innovative products and a wider customer base. Increased penetration has also compelled both the regulators and government to renew their focus on this migration to a “cashless” society. Consequently, the regulatory framework governing e-commerce and financial technology has seen various amendments recently.

Payment Systems in India

In India, the payment and settlement systems are regulated by the Reserve Bank of India (RBI), which exercises oversight over this market. Payment systems are required to obtain authorisation from the RBI to enable payment between a payer and a beneficiary; and while effecting such payment, they should provide payment, clearing and/or settlement services. Set out below are the key payment systems covered under the regulatory framework.Continue Reading Payment Systems – The Digitalisation of Financial Services and its Future

Over the years, companies have used employee stock option schemes (ESOP Schemes) as an effective method to align employee interests with shareholders, reward their efforts, increase their loyalty towards the company and motivate employees to perform better.

An initial public offering (IPO) and consequent listing of equity shares is one of the critical ways in which employees seek value appreciation in stock options and equity shares held by them. Accordingly, unlisted companies typically align timing of exercise of options under ESOP Schemes with their plans to undertake an IPO.

The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended (SEBI ICDR Regulations), which regulates IPOs, provides exceptions for ESOPs from certain eligibility conditions to be fulfilled by the issuer undertaking the IPO as well as transfer restrictions on equity shares applicable after the completion of the IPO.

However, issuers have faced challenges in the past with respect to eligibility conditions if the options have remained outstanding with individuals who have ceased to be an employee of the issuer.

Further, issuers are being increasingly questioned by such former employees, who continue to hold shares in the issuer but are not offered lock-in exemptions available to existing employees. Additional basis to these concerns is that former employees are treated beneficially under the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 (ESOP Regulations) and the Companies Act, 2013 and similar benefits have not been recognised under the SEBI ICDR Regulations.Continue Reading Survival of Employee Stock Options through the IPO process: Are former employees stranded?

One of the key tenets of effective corporate governance is the ability of a corporation to promote transparency. Transparency and accountability is strengthened not just by efficient management and robust disclosure policies, but also by the creation of systems and processes to detect and address internal instances of fraud and corruption.

Whistleblowing has always played a distinct role in making companies alert to, and mindful of, employee conduct as well as internal processes and procedures. The existence of this class of facilitators is well recognised in the Indian legislative framework. Under section 177(9) of the Companies Act, 2013, it is mandatory for every listed company to establish a vigilant mechanism for directors and employees. Furthermore, the revised clause 49 of the listing agreement mandates that the company must establish a whistleblower mechanism with adequate safeguards against victimisation of whistleblowers.

Whilst immensely beneficial, tipping off/whistleblowing comes with its own set of unique challenges for the company, the alleged wrongdoer as well as whistleblowers themselves. While there is no ‘one size fits all’, certain aspects, as detailed below, should be considered by any company seeking to establish a whistleblower mechanism:
Continue Reading Who Can Hear The Whistle Blow? Whistleblowing And Its Impact On Corporate Governance In India