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SEBI takes significant steps to make investing safer for investors
In the last few years, SEBI has been extremely proactive in protecting the interests of the investors, especially the small investors. During the week, SEBI made 3 very significant announcements that would go a long way in protecting the interests of small investors. Let us look at these measures and how they would really do a favor to investors.
Written By Bani Thakkar
Table of Content
Closely regulating ISTs
In the current financial year, debt funds did inter-scheme transfers (IST) to the extent of Rs.62,000 crore of which ISTs to the tune of Rs.22,000 crore were done in the immediate aftermath of the Templeton MF fiasco. Currently, there is only one condition for ISTs that it should be done at market driven prices. However, the logic or the intent behind the transfer was never questioned by SEBI. Now SEBI has decided to do just that so fund managers do not transfer bad assets into the portfolio of some unsuspecting debt fund investor.
Now SEBI has defined a waterfall that in a liquidity crisis, debt funds must first use their own funds, then their short term investments, then borrow up to the limit and only after that ISTs can be justified. SEBI has also stipulated that compensation of fund managers must be linked to the outcome of IST. The new rules also stipulate that the fund will have to explain to investors when any debt paper so transferred defaults immediately. That will go a long way!
AT1 bonds; not for retail
AT1 bonds or perpetual bonds were allowed by RBI so that banks could raise tier-1 capital without diluting equity. But AT1 bonds had a catch. They could be repudiated by the bank in the event of a crisis. When SBI repudiated Yes Bank AT1 bonds during the rescue act, scores of small investors complained that banks had mis-sold these AT1 bonds to them. To avoid such an eventuality, SEBI has now increased the minimum ticket size of AT1 bonds to Rs.1 crore. In addition, SEBI has also stipulated that the AT1 bonds will be open for subscription only to qualified institution buyers (QIBs) and not for retail investors. This will go a long in keeping small investors safe and reduce the chances of mis-selling.
Forensic audit outcomes
In a significant move, SEBI has now made it mandatory for listed companies to disclose details of the findings of any forensic audit to the exchanges. In the past, it had been observed that while statutory bodies had ordered forensic audit into companies for suspected frauds and money laundering, these details were never made public. Most of these forensic audit outcomes are very price sensitive and not disclosing the details to the exchange gives a distinct advantage of information asymmetry to some privileged persons. Hopefully, that imbalance will now stand rectified and investors will get due access!