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Wednesday, August 04, 2021

Sebi brings in new ‘investors’; stricter independent dir norms

The regulator’s board also tightened the norms for independent directors. It said that independent directors can be appointed only through a special resolution passed by shareholders.

Written by Khushboo Narayan | Mumbai |
Updated: June 30, 2021 7:17:01 am
Securities and Exchange Board of India (Sebi) Chairman Ajay Tyagi.

The board of the Securities and Exchange Board of India (Sebi) has approved a new category of wealthy, well-informed investors who will be allowed to invest in riskier products, not usually allowed to individuals. Termed accredited investors, these entities could be individuals, family trusts, proprietorships, etc.

The regulator’s board also tightened the norms for independent directors. It said that independent directors can be appointed only through a special resolution passed by shareholders. A special resolution requires 75 per cent of votes in favour to be passed. The regulator has also elaborated and strengthened the disclosure requirements for the skills required to be an independent director. Moreover, the regulator also said that nomination and remuneration committee of the board of directors, which decides on appointments and compensation, and the audit committee should have two-thirds independent directors compared to a simple majority now. The regulator also stipulated that all related party transactions shall be approved by only independent directors on the audit committee.

Further, the board said that “the entire resignation letter of an independent director shall be disclosed along with a list of her/his present directorships and membership in board committee.”

These changes will take effect from January 2022.

Sebi’s statement said it will specify the eligibility criteria for such investors who can get the accreditation from agencies such as stock exchanges, subsidiaries of depositories and so on.

A February consultation paper floated by the regulator had specified these criteria as annual income must be at least Rs 2 crore, or minimum net-worth of Rs 7.5 crore, with half invested in financial assets, or minimum annual income of Rs 1 crore plus minimum net worth of Rs 5 crore.
Accredited investors will be given the flexibility to invest the less than minimum amount mandated in Sebi rules and, subject to certain conditions, get relaxation from regulatory requirements.

Sebi’s board also increased the maximum reward amount for an informant who blows the whistle on insider trading to Rs 10 crore from Rs 1 crore now. It has also expedited the payment of rewards to informants.

The regulator has also approved amendments to its mutual fund regulations which requires asset management companies to require more of their own funds in riskier schemes so that they have more skin in the game. Currently, AMCs have to invest only one percent of the amount raised in a new fund offer, or Rs 50 lakh, whichever is lower.

Further, Sebi also allowed debt issuers who have less than three-year track record to raise funds provided they issue only on a private placement basis on an exchange bond bidding platform to qualified institutional buyers (QIBs).

Independent directors: Appointment rules

Sebi board tightened norms for independent directors. It said that independent directors can be appointed only through a special resolution passed by shareholders. A special resolution requires 75 per cent of votes in favour to be passed.

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