SEBI Current Affairs: May, 2018 (Part II)

Transcription

1 SEBI Current Affairs: May, 2018 (Part II) Relevant for SEBI Grade A 2018 Examination

2 SEBI allows debt issuers to review ratings by agencies SEBI has allowed debt issuers to review ratings given by agencies, a move that will check the menace of rating shopping and pick-and-choose approach in their actions. In the past, several firms have expressed dissatisfaction against credit rating agencies (CRAs) after ratings on their debt were suddenly downgraded or withdrawn. Now, such firms may approach credit rating agencies with more supporting documents for a better rating.

3 Sebi likely to allow futures trading in petrol and diesel Sebi is close to giving its green signal to the Indian Commodity Exchange (ICEX) to launch futures on petrol and diesel. This is aimed at insulating retail oil dealers, large transporters and fleet operators, and also consumers from being abruptly hit by volatility in prices of crude oil. Petrol and diesel are among the 90-plus commodities that have been approved by the government for derivatives trading.

4 Futures Contract

5 Sebi to make life easier for FPIs; to look at grey areas, rework rules Sebi has constituted a high-profile team led by a former deputy governor Sh. H.R. Khan of Reserve Bank of India (RBI) to redraft the rules. The committee will delve into multiple grey zones and ambiguities to come out with a new policy regime without altering the broader framework.

6 Categories of Foreign Portfolio Investors FPIs are classified into three categories. Category I (or CAT I) FPIs are sovereign funds and those backed by government and multilateral agencies; CAT II FPIs are regulated, broad-based entities like pension funds, and funds led by insurance companies, banks and mutual funds; and, CAT III FPIs are unregulated funds backed by corporates, individuals, family offices, and trusts; hedge funds, which are under a comparatively looser regulatory regime, are also included under CAT III.

7 Sebi panel proposes stricter norms for RTAs SEBI has proposed tighter ownership and governance norms for registrar and transfer agents (RTAs). According to a discussion paper released by Sebi, the panel, headed by former Reserve Bank of India (RBI) deputy governor R. Gandhi, Felt that since RTAs manage sensitive investor-related data, there need to be stricter governance rules for them. The panel, however, felt RTAs, CRAs and debenture trustees need not be categorized as MIIs but suggested that RTAs should have tighter norms.

8 Registrar and Transfer agents (RTAs) RTAs maintain detailed records of all investor transactions in mutual funds and shares. They also help investors complete their transactions and receive a record of their account statements. In September 2017, Sebi had defined qualified RTAs (QRTAs) as RTAs servicing more than 20 million folios. Sebi panel said QRTAs should either have a dispersed ownership or be owned by regulated entities or entities in the business of RTA. Sebi proposed that the board of RTA should have public interest directors (PIDs) when it becomes a QRTA.

9 Sebi announces additional risk management measures for derivatives segment SEBI has put in place additional risk management measures for the derivatives segment. These measures pertain to margin collection requirement and computation of liquid net worth for equity derivatives segment. Client margins are required to be compulsorily collected and reported to exchange or clearing corporation. These changes will impact the brokers who collect minimum margins for F&O trading

10 Margin Requirements in Derivative Trading A margin in the derivatives market is the amount of cash an investor must put up to open an account to start trading. It acts as a down payment on the underlying asset and helps ensure that both parties fulfill their obligations.

11 Use of SPAN for computing Margin Requirements The initial margin required for the positions is computed using a software called SPAN (Standard Portfolio Analysis of Risk). SPAN margin covers almost of the risk for of the day. Failure to have requisite SPAN margin in the account can result in penalty being levied by the exchanges.

12 Sebi proposes uniform pricing for debt securities To deepen the bond markets, regulator Sebi proposed a uniform methodology to determine pricing of non-traded and thinly traded nonconvertible debt securities. Current practice of pricing of corporate bonds varies for different classes of regulated entities and this move will bring uniformity in this regard. Uniform pricing methodology will provide prices on a daily basis and may be followed by all the regulated entities for valuing their corporate bond portfolio.

13 Convertible vs. Non-Convertible Debt Securities

14 Sebi tightens KYC norms for foreign portfolio investors Stepping up its crackdown on money laundering and round-tripping, Sebi recently came out with a detailed framework for risk based Know Your Client (KYC) documentation of foreign portfolio investors (FPIs). Among other things, the market regulator made it clear that non-resident Indians (NRIs), overseas citizens of India (OCI) and resident Indians cannot be beneficial owners of FPIs. NRIs and OCIs can only obtain an FPI licence on condition that they limit their roles to investment advisors and do not invest their money. Sebi further sought a comprehensive list of beneficial owners from the existing FPIs within six months

15 NSE algo trading case: SEBI may ready final report soon SEBI is trying to find out the exact role or possible collusion of each of the NSE employees who could be linked to the matter. Prima facie there are two questions that SEBI has looked at first, if there is any case of systemic lapse, and the second, who colluded and benefited from it. SEBI s Technical Advisory Committee (TAC) in 2016 had said in its report that, Preferential access was given by the NSE to stockbroker(s)."

16 Algo Trading Algorithmic trading is a method of executing a large order (too large to fill all at once) using automated preprogrammed trading instructions accounting for variables such as time, price, and volume to send small slices of the order (child orders) out to the market over time.

17 New SEBI framework to check non-compliance of listing rules Sebi has put in place a stronger mechanism to check noncompliance of listing conditions, wherein exchanges will have powers to freeze promoter shareholding and even delist the shares of such defaulting companies. Besides, exchanges can levy fines on non-compliant company, move the stocks of such firms to restricted trading category and suspend trading in the shares of such entities. If a non-complaint entity is listed on more than one exchanges, the concerned bourses need to take uniform action in consultation with each other

18 SEBI mandates secretarial audits for all listed cos SEBI has mandated secretarial audits for all listed companies and "material unlisted" subsidiaries of such companies. This has been done under its Listing Obligations and Disclosure Requirements (LODR) regulations. Company law since 2014 already provides for such audits for listed and unlisted companies above a threshold. SEBI also made it clear that company secretaries and CFOs are to be specifically considered as part of "senior management" and therefore their remuneration has to be recommended by the Nomination and Remuneration Committee of the Board.

19 Sebi writes to govt urging tax parity between cash and derivatives Sebi is of the view that the differentiating tax structure, particularly the securities transaction tax (STT), is incentivising participation in the derivatives segment. Currently, STT is charged at a much higher rate for delivery-based trades in the cash segment. Favourable tax treatment among other factors is encouraging small time investors towards derivative markets who may lose their savings in it. Sebi has been making efforts to discourage retail investors from participating in the derivatives since these are sophisticated instruments

20 What is Securities Transaction Tax? STT is levied on purchase or sale of securities that are listed on the Indian stock exchanges. This would include shares, derivatives, or equity-oriented mutual funds units.

21 Derivatives vs. Cash Segment When you buy shares in the cash market and take delivery, you are the owner of these shares but you can never be a shareholder when you trade in the derivatives segment of the capital market. Investor in cash segment is entitled to dividends that companies pay. Both, cash and futures markets pose risk, but the risk in the case of futures can be higher, because you have to settle the contract within a specified period and book losses. You buy a contract in the derivatives market to hedge risk or to speculate. Individuals buying shares in the cash market are investors. In the derivatives segment you pay only margin money but in the case of cash segment, you have to pay the entire amount and not only margin.

22 MCQ s

23 1. Which category of Foreign Portfolio investors include FPIs which are sovereign funds and those backed by government and multilateral agencies? a) Category I * b) Category II c) Category III d) None of the above 2. Which of the following is/are correct w.r.t. Registrar and Transfer Agents (RTAs)? a) They maintain detailed records of all investor transactions in mutual funds and shares b) They help investors complete their transactions and receive a record of their account statements c) Both a and b* d) None of the above

24 3. A in the derivatives market is the amount of cash an investor must put up to open an account to start trading. a) Collateral b) Margin* c) Security d) Corpus 4. The initial margin required for the positions in derivatives contracts is computed using a software. Software used for this purpose is called as? a) SPAN* b) ASBA c) DEMAT d) ALGO

25 ANSWERS 1. A 2. C 3. B 4. A

26 SEBI Current Affairs - May 2018

27 Thank You! Happy Learning!