On September 30, 2024, the Securities and Exchange Board of India (SEBI) held an important board meeting and announced several significant measures aimed at enhancing trading practices for regular investors and simplifying regulations in the mutual funds (MF) sector. The market regulator surprised many by not implementing expected measures to curb the rapid growth of derivatives trading, which has been a hot topic among market experts and traders.
SEBI Chairperson Madhabi Puri Buch previously expressed concerns about the rise in derivatives trading, describing it as a “macro issue” that diverts capital away from productive use in the economy. While tax increases set to take effect next month have helped decrease the volume of derivative contracts from a record $6 trillion in February, the focus of the meeting was on new opportunities for investors.
SEBI introduced a new asset class designed for high-risk investors. Asset management companies (AMCs) can now offer riskier investment strategies, such as long-short equity, to investors willing to invest a minimum of ₹10 lakh. This initiative aims to provide high net worth individuals (HNIs) with access to equity derivatives while still maintaining a clear distinction from traditional mutual funds. The new product, referred to as “Investment Strategies,” is designed to expand the investment landscape in India. Notably, safeguards will prevent the use of leverage and restrict investment in unlisted or unrated instruments.
Additionally, SEBI announced the introduction of a relaxed regulatory framework, dubbed “MF Lite,” for entities looking to launch only passive mutual fund schemes. This framework simplifies eligibility requirements for sponsors, allowing more entities to enter the market. The goal is to increase market participation, enhance liquidity, and foster innovation. Existing AMCs will have the option to separate their active and passive schemes into different entities if desired.
To facilitate quicker access to funds, SEBI approved new norms for rights issues through a preferential allotment route. The timeline for completing a rights issue will now be just 23 days, a significant reduction from the previous 317 days. This change is expected to encourage more companies to consider rights issues as a viable fundraising option, allowing existing shareholders to benefit from their companies’ growth.
SEBI has also broadened the definition of “connected person” under insider trading regulations. This expansion now includes immediate relatives like spouses, children, and siblings, as well as anyone sharing a household with a connected person. This move aims to strengthen the enforcement of insider trading regulations and ensure that more individuals are included within the scope of prohibitions.
In addition, SEBI is easing the eligibility criteria for registration and compliance for Investment Advisers (IAs) and Research Analysts (RAs). Qualified stock brokers will now be required to provide investors with the option to trade using a UPI block mechanism, making transactions more convenient.
These measures are expected to enhance the trading environment for investors, making it easier for them to navigate the market and take advantage of new opportunities. As SEBI continues to adapt to the evolving landscape, investors can look forward to more innovative products and streamlined processes.
