SEBI Changes Rules of Business in India

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The Securities and Exchange Board of India (SEBI), the Indian market regulator held its last full-time meeting today for the financial year 2017-18 and came up with some announcements to improve corporate governance. Other important announcements include shared co-location services to trade members and improvement of investor participation in mutual fund schemes.

SEBI Changes Rules of Business in India

A total of 40 out of 80 recommendations made by the panel headed by Uday Kotak were accepted without modifications. 15 were accepted with modifications and 18 rejected.

Major decisions made include:

  • Reduction of additional expense for mutual funds from 20 to 5 basis points.
  • The post of CMD (chairperson and MD/CEO) position will be split by April 2020 for top 500 entities by market value.
  • The maximum number of individual directors on a company's board has been reduced to 8 from 10.
  • Traders in stock exchanges will be allowed to share co-location facilities in an attempt to address concerns on high-frequency. algorithmic trading.
  • Stock exchanges to provide tick by tick data feed for free.

Sebi had proposed a review of algorithmic trading after concerns over high-frequency traders having unfair access to the exchange's system. It was noted that traders had intentionally clogged systems with a large number of orders. Algorithmic trading allows generation of orders in super fast speed to execute trade automatically.

Shared location facility will not only address the unfair access concerns but reduce the cost of brokers, as per SEBI Chairman Ajay Tyagi's statement.

Some other recommendations made by the Uday Kotak committee that were accepted by the board without modifications were:

  • Number of directors on board to be reduced from 10 to 8 from April 1, 2019, to 7 by April 1, 2020.
  • Eligibility criteria for listed entities expanded.
  • Role of audit, nomination, and remuneration, and risk management committees enhanced.
  • Disclosure of utilisation of funds from QIP, preferential issue, auditor credentials, audit free, reasons for the resignation of auditor, expertise, and skills of directors.
  • Disclosure of related-party transaction enhanced and permission to related parties to vote against each other.
  • Mandatory disclosure of quarterly results from the year ending March 2020.
  • Increased obligations on listed entities regarding subsidiaries.
  • Compulsory secretarial audit for listed entities and their unlisted subsidiaries.

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