SEBI | Fine on non-compliance with continuous disclosures provisions

SEBI released a circular dated December 29, 2021 on 'non-compliance with provisions related to continuous disclosures' (Circular). The Circular, will take effect on or after February 1, 2022, has been issued to recognized stock exchanges, depositories, issuers of listed non-convertible securities and issuers of listed commercial papers.

Key aspects

  • Stock exchange(s) shall levy fine and take action in case of non-compliance with continuous disclosure requirements by the issuers of listed non-convertible securities and/or commercial paper.
  • The fines collected must be credited to the concerned stock exchange's Investor Protection Fund.
  • The fines specified in the Annexure I of the Circular will continue to accrue until the non-compliance has been remedied and the concerned recognized stock exchange has been satisfied. This accrual will take place regardless of any other disciplinary/enforcement actions taken by recognized stock exchange/ SEBI.
  • If a non-compliant entity is listed on more than one recognized stock exchange, the concerned recognized stock exchange(s) will take uniform action in accordance with the Circular after consulting with one another.
  • Recognized stock must publish on their websites, the actions taken against entities for non-compliance. The published details will include details of the corresponding requirement, the amount of fine levied upon the entity and the necessary action taken.
  • As per the Annexure of the Circular, few of the instances of non-compliance and their penalties are:
    • In case of delay in furnishing intimation about a board meeting, a penalty of INR 5,000 per instance of non-compliance per item is levied
    • In case of non-submission of the annual report within the period prescribed, a penalty of INR 2,000 per day will be levied
    • For failure to obtain prior approval of stock exchange for any structural change in non-convertible securities, a penalty of INR 50,000 per instance will be levied.
  • In specific circumstances, where a specific exception from the requirements for continuous disclosures/moratorium on enforcement proceedings has been allowed for, under any Act, Court/Tribunal Orders, the recognized stock exchanges may maintain the action in abeyance or may also withdraw the action.
  • As per the Circular, the actions and measures are without prejudice to the powers of by the SEBI to initiate an action under the securities laws.

SEBI | Proposes regulatory framework for retail algo trading

SEBI proposed a fresh regulatory framework for algorithmic trading or algo trading by retail investors. The objective is to seek comments from stakeholders and the public on algo trading by retail investors, including the use of Application Programming Interface (API) access and automation of trades to make such trading safe and prevent market manipulation.

Algorithms leverage user data, behavior, and usage patterns, and take in pre-specified instructions to achieve certain goals. In trading, it uses a predefined set of commands to dictate the exact criteria for buying and selling stocks or other asset classes like futures and options, commodities, and currency derivatives.

Currently, exchanges approve algos submitted by brokers. However, for algos deployed by retail investors using APIs, neither the exchanges nor the brokers can identify if a trade emanating from the API link is an algo or a non-algo trade. These kinds of unregulated/unapproved algos pose a risk to the market and can be misused for systematic market manipulation as well as to lure the retail investors by guaranteeing them higher returns. SEBI has proposed this regulatory framework to ensure appropriate checks and prevent unauthorized altering or tweaking of algos.

Key aspects

  • All orders emanating from an API should be treated as an algo order and be subject to control by stockbroker.
  • The APIs to carry out algo trading should be tagged with the unique algo ID provided by the approving exchange.
  • All algos developed by any entity must run on the servers of broker wherein the broker has control of client orders, order confirmations and margin information.
  • Stockbroker is responsible for all algos emanating from its APIs and redressal of any investor disputes.

SEBI | Amended delisting provisions

SEBI released a notification on December 06, 2021 for amending the Shares and Takeover Regulations and released the SEBI (Substantial Acquisition of Shares and Takeovers) (Third Amendment) Regulations, 2021 (Amendment). The Amendment primarily pertains to the delisting rules for shares of a company and eases the process of mergers and acquisitions.

Key aspects

  • The Amendment has inserted a definition of 'delisting regulation' as per the meaning ascribed under the SEBI (Delisting of Equity Shares) Regulations, 2021.
  • An acquirer may seek the delisting of a target company by making an offer at the time of issuing the public announcement of an open offer and the comprehensive public statement, provided that such intention to delist needs to be declared. Previously, only the comprehensive public statement for intention to delist was required to be declared.
  • The acquirer needs to complete the delisting offer responsibilities by issuing a public announcement, a comprehensive public statement, and a letter of offer that includes the open offer price calculated in compliance with the Regulation 8 and the indicative price for delisting. Further, the acquirer shall notify both the open offer price and the indicative price at the time of issuing the comprehensive public statement.
  • Where a delisting offer fails for one of the following reasons – failure to receive prior shareholder approval in accordance with Regulation 11 of the Delisting Regulations; failure to receive prior in-principal approval of the relevant stock exchange in accordance with Regulation 12 of the Delisting Regulations; or failure to meet the threshold of 90% set out in Regulation 21 of the Delisting Regulations – the acquirer shall make an announcement in all newspapers where the comprehensive public statement was published, within 2 working days of the failure, and adhere to all relevant provisions of these regulations relating to the completion of the open offer.
  • When a competitive offer is made as per Regulation 20, the acquirer is not allowed to delist the target company and is also not responsible to pay interest to the shareholders because of the competing offer's delay. The acquirer must adhere to all relevant rules of these regulations and publish an announcement in all newspapers where the comprehensive public statement was published within 2 working days from the date of the public announcement.
  • Within 5 working days following the date of the announcement, shareholders who have tendered shares in acceptance of the offer shall be able to withdraw their tendered shares.
  • If the target company is unable to be delisted following the delisting offer but the acquirer's shareholding exceeds the maximum permissible non-public shareholding threshold of 75%, the acquirer could aim to delist the target company again within 12 months of the open offer's completion, provided that the acquirer's non-public shareholding in the target company remains above the maximum permissible non-public shareholding threshold.
  • The following conditions must be followed for another delisting attempt to be successful:
    • The delisting threshold set forth in Regulation 21 of the delisting regulations is met
    • 50% of the remaining public shareholding is purchased
  • If a delisting attempt fails, the acquirer shall comply with the target company's minimum public shareholding criteria under the Securities Contract (Regulation) Rules, 1957 within 12 months.
  • Further, the floor price for a subsequent delisting attempt shall be higher than the indicative price proposed on the initial attempt at delisting and the company's book value shall be computed as per the Amendment.

SEBI | Introduction of investor charters for Mutual Funds, PMS and AIFs

On December 10, 2021, SEBI released a Circular providing for separate investor charters for Mutual Funds (MFs), Portfolio Management Service (PMS) providers and Alternative Investment Funds (AIFs), assigning rights and responsibilities for investors as well as mandating disclosures that must be made in formats prescribed by the regulator. The move is aimed at bringing further transparency to the investor grievance redressal mechanism. These disclosure requirements are in addition to those already mandated by SEBI. This fresh Circular have come into effect from January 1, 2022.

Key aspects

  • MFs, PMS and AIFs will have to disclose the investor charter on their websites.
  • Additionally, AIFs should bring investor charter to the notice of investors through Private Placement Memorandum (PPM) in case of new schemes; for existing schemes, as a one-time measure, they should disclose the charter to the investors on their registered e-mail.
  • MFs are required to disclose the details of investor complaints on their respective websites as well as on the Association of Mutual Funds in India (AMFI) website monthly in the prescribed format.
  • MFs are advised to display links/options to lodge complaints with them directly on their websites and mobile apps. The link to the SCORES website and the link to download the mobile application shall also be provided on their website.
  • Portfolio managers also need to disclose the data on their websites pertaining to complaints including SCORES complaints, on monthly basis.
  • This disclosure needs to be mandated within seven days of the close of each month.

To read the full article click here

Originally Published by January 2022

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.