25 October 2010

SEBI October 2010 Board meeting

SEBI in its Board meeting today decided several issues as disclosed by a press release. Thankfully they have not yet accepted the deeply flawed new takeover regulations - if they are spending more time thinking about it, that is a good sign.

Middle class India will rightly cheer the expansion of the definition of retail from those who apply for shares worth Rs. 100,000 to 200,000. As investors in the retail category have been upper middle class persons, the move will transfer more shares to a more diversified ownership amongst the public.

Promoters or control persons must meet a year long cooling off period if even one of them do not exercise warrants issued to them (this after increasing the upfront premium from 10% to 25%). In addition if one promoter has sold shares, all promoters become ineligible to subscribe to preferential allotment of shares. These moves are dramatic, extreme and unnecessary. How can the action of one person selling one share (or not exercising one warrant) create such huge impacts for the entire group of persons?

After battling private treaties unsuccessfully in the past few months, the regulator has made another attempt at addressing the conflict of interest issue of media firms investing in companies which seek to go public and offering advertisement space in return. This is done in a slightly round-about way - the merchant bank now must give a compliance certificate that the media output is in terms of the draft prospectus where a private treaty exists. But this is a start as oppossed to the previous effort which had no support of the Press Council.

Finally, the regulator has mandated that to register as a foreign venture capital fund, there must be firm committment to invest at least $1 million. It escapes me why there is a need to have a minimum amount which needs to be invested in a venture capital fund. It also escapes me why SEBI regulates investors rather than intermediaries (the same applies to regulations for FIIs).

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