The Securities and Exchange Board of India (SEBI) has recently approved a framework intended to enhance transparency and accountability in the governance and administration of financial benchmarks within the securities market. This approval establishes a more robust regulatory framework for capital markets as per international standards and principles.
New Regulations Introduced by SEBI
SEBI has introduced several new regulations to improve the financial market’s functioning. These include:
A Framework for Registration of Index Providers
SEBI announced the approval of regulations establishing a framework for the registration of Index Providers, entities responsible for creating, maintaining, and calculating the values of financial indices. The framework is specifically applicable to ‘Significant Indices,’ which SEBI will identify based on objective criteria, aligning with the International Organization of Securities Commissions (IOSCO) Principles for Financial Benchmarks.
Dematerialization Requirement for AIF Investments
SEBI introduced a requirement for Alternative Investment Funds (AIFs) to hold fresh investments made after September 2024 in dematerialized form. Existing investments are exempt, except when mandated by law or when the AIF, alone or with other SEBI-registered entities, has control in the investee company. This mandate will apply to all AIFs, expanding on previous requirements for specific categories of AIFs.
Amendments to Real Estate Investment Trusts Regulations
The SEBI board approved amendments to the Real Estate Investment Trusts (REITs) Regulations. These changes provide a regulatory framework for Small & Medium REITs (SM REITs), which can establish separate schemes for owning real estate assets through special purpose vehicles (SPVs).
Social Stock Exchange Framework Flexibility
SEBI enhanced the framework for the Social Stock Exchange (SSE) to boost fundraising by Not-for-Profit Organizations (NPOs). New provisions include a reduction in the minimum issue size and application size for public issuance of Zero Coupon Zero Principal Instruments (ZCZP) by NPOs on the SSE, aiming to encourage wider participation, including among retail investors.
Nomenclature Change for NPOs
SEBI approved a change in terminology from “Social Auditor” to “Social Impact Assessor,” aiming to convey a positive approach toward the social sector. This measure aims to provide comfort to NPOs involved in the SSE and reinforce SEBI’s support for social impact initiatives.
About SEBI and its Functions
Established by the Securities and Exchange Board of India Act, 1992, SEBI is a statutory body responsible for protecting the interests of investors in securities and promoting and regulating the securities market. Before SEBI’s establishment, the regulatory authority was the Controller of Capital Issues, which derived authority from the Capital Issues (Control) Act, 1947.
Introduction to IOSCO
The International Organization of Securities Commissions (IOSCO) is an international organization that brings together the world’s securities regulators. Founded in April 1983, it covers more than 95% of the world’s securities markets and is the global standard setter for the securities sector. It works closely with the G20 and Financial Stability Board (FSB), setting standards for strengthening securities markets.
Functions and Membership of IOSCO
IOSCO’s primary objectives are to develop, implement, and promote adherence to internationally recognized, consistent regulatory standards. It also aims to enhance investor protection and promote investor confidence in the integrity of securities markets. SEBI is an ordinary member of IOSCO, benefitting from the platform’s information exchange at both global and regional levels.
