SEBI Approves Key Measures to Strengthen Investor Protection and Transparency

The Securities and Exchange Board of India (SEBI) approved several significant measures in its latest board meeting to strengthen investor protection and improve market transparency. These include stricter rules for small and medium enterprise (SME) IPOs, enhanced regulations on insider trading, and updated guidelines for merchant bankers. The changes aim to protect vulnerable investors, promote ease of doing business, and maintain market integrity.

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One of the major decisions was tightening the rules for SME IPOs. To ensure financial stability, SMEs must now demonstrate a minimum operating profit of ₹1 crore in at least two of the last three financial years before filing for an IPO. Additionally, investors applying for shares in SME IPOs will need to invest a minimum of ₹2-4 lakh, up from ₹1 lakh, to ensure that only well-informed investors take on the higher risks associated with these ventures.

SEBI also imposed stricter conditions on the sale of shares by promoters. During an SME IPO, promoters can only sell up to 20% of their shareholding collectively, with no single shareholder selling more than 50%. To ensure long-term commitment, promoters' holdings exceeding the minimum required will be subject to lock-in periods, with half unlocked after one year and the remainder after two years. Furthermore, funds raised through IPOs cannot be used to repay loans from promoters or related parties, limiting potential misuse of the proceeds. With this, SEBI has capped the amount raised for general corporate purposes (GCP) to 15% of the total proceeds or ₹10 crore, whichever is lower.

SEBI introduced a 21-day public review period for draft red herring prospectuses (DRHPs) for SME IPOs in an effort to increase market transparency. The allocation methodology for non-institutional investors (NIIs) in SME IPOs will also now align with that of mainboard IPOs, ensuring fairness across the board.

The board meeting also focused on tightening insider trading regulations. SEBI expanded the definition of unpublished price-sensitive information (UPSI) to include 17 additional items. Companies will now have a two-day window to identify such information, giving them more flexibility in managing market-sensitive developments.

SEBI also introduced several updates for merchant bankers. The new regulations will require these entities to maintain a higher net worth of at least 25% and an underwriting limit of 20 times their liquid net worth. Merchant bankers will also be prohibited from engaging in non-permitted activities unless they are spun off into separate legal entities. 

Finally, SEBI approved measures to ease the process for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), streamline debt listing rules, and enhance corporate governance standards. These changes are expected to foster greater transparency and protect investors.

In Conclusion

In the Board Meeting, several other updates, including relaxation in ESG reporting, responsible use of AI, amended mutual funds laws, and more, were also discussed. These actions demonstrate SEBI's continued dedication to enhancing investor safety and increasing market transparency. With these reforms, SEBI aims to enhance regulatory standards, address emerging challenges, and streamline processes for both investors and market participants.