Regretting non-passage of a bill aimed at granting additional powers to regulator Sebi, the government Monday said that various other steps have been initiated for reforms in capital markets.
The budget documents described the proposal to amend Sebi Act to strengthen the regulator as “work in progress” and said that an Ordinance was promulgated to amend Securities and Exchange Board of India (SEBI) Act, and related Acts for powers to the capital markets regulator.
The Bill was introduced in Lok Sabha on August 12, 2013 and “the version of the Bill is before the Standing Committee of Finance for their report to the Parliament,” the budget papers said while detailing implementation of various announcements made in last year’s budget.
“I regret to record my disappointment that the Insurance Laws (Amendment) Bill and the Securities Laws (Amendment) Bill have not been passed by Parliament for reasons that have nothing to do with the merits of the Bills,” Chidambaram said in his interim budget speech in Parliament.
Terming Indian capital markets as among the best regulated, Chidambaram last year also proposed a number of proposals relating to the capital market that were finalised in consultation with the Sebi.
As per the latest implementation status of various proposals in the capital market given in the budget papers, the government is following up on the K M Chandrasekhar Committee report on the proposal to classify foreign portfolio investors (FPIs) under various categories.
It is also in the process of finalising changes to PMLA (The Prevention of Money Laundering Act) rules to implement risk-based KYC, in a bid to simplify the procedures and prescribe uniform registration for entry of FPIs.
Further, the government has also circulated draft report of the committee comprising RBI, DIPP, Sebi and Department of Revenue (DoR) for comments on principle of defining Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII).
In this regard, it has has proposed to “follow the international practice and lay down a broad principle that, where an investor has a stake of 10 percent or less in a company, it will be treated as FII and, where an investor has a stake of more than 10 percent, it will be treated as FDI”.
Further, on the suggestion of allowing FIIs in the exchange traded currency derivative segment to the extent of their rupee exposure, it has been decided to keep the same “in abeyance till the value of rupee stabilises”.
Moreover, the government has been mulling on expanding the list of securities in which pension funds and provident funds may invest. This list may be enlarged to include exchange traded funds and debt mutual funds, among others.
“The report of the expert group on review of the investment pattern for provident funds etc. under the Chairmanship of G N Bajpai is expected soon,”the budget papers said on the status of the proposal.
“On receipt of the report, the proposal to revise the investment pattern for provident funds…would be finalised,” it added.
The Finance Minister also said that Sebi had introduced various norms with respect to listing of small and medium enterprises, including start-up companies, on the SME exchange without being required to make an IPO, permitting mutual fund distributors to become members of bourses and prescribing requirements for angel investor pools which can help them be recognised as “Category I AIF venture capital funds”.
The capital market watchdog has also amended norms for the purpose of introducing debt segment on stock exchanges to permit banks, primary dealers, insurance companies, pension and provident funds to be members subject to approval by respective regulations, earlier last year, the budget papers said.
“The draft amendments to Securities Contracts(Regulations) Rules, 1957 is being sent for notification in the Gazette after legal vetting,” it added.
Besides, the RBI and the Sebi have issued circulars that allow FIIs to use their investment in corporate bonds and government securities as collateral to meet their margin requirements.