Since our Client Alert dated March 21, 2020 (accessible here), the Securities and Exchange Board of India (‘SEBI’) has taken further measures in light of the COVID-19 outbreak. Some of the key features are set out below.
1. Reduction in Compliance Burden on Market Participants
By its press release dated March 23, 2020, SEBI has taken measures to reduce the compliance burden on various market participants, including the following:
(a) Penal provisions for non-collection / short collection of margins by brokers will be implemented from April 30, 2020 (instead of April 1, 2020);
(b) National Institute of Securities Market certifications expiring between March 15, 2020 to June 29, 2020 will stand extended till June 30, 2020;
(c) Trading members working from designated alternate locations are exempted from the penal provisions for not maintaining call recordings of orders / instructions received from clients till March 31, 2020. However, the trading member and the stock exchange are required to send a confirmation on the registered mobile number of the client immediately after execution of the order;
(d) The delay in submission of various reports by trading members will not attract penal provisions till April 30, 2020;
(e) Trading members will be placed in risk reduction mode upon utilization of 90% (instead of 85%) of the members’ capital towards margins;
(f) The implementation of SEBI circulars for risk management framework for liquid schemes of mutual funds and for existing open-ended debt oriented mutual fund schemes, to comply with the revised limits for sector exposure and for valuation of money market and debt securities based on mark-to-market valuation, have each been extended by 1 month (i.e. from April 30, 2020 to May 1, 2020);
(g) Certain disclosure requirements have been extended by a period of 1 month, including the half yearly disclosures of unaudited financial results mandated under Regulation 59 of the SEBI (Mutual Funds) Regulations, 1996;
(h) Validity of SEBI observation letters for New Fund Offer by Mutual Funds has been extended by 6 months; and
(i) The access control presently exercised in the asset management companies’ dealing room (including call recording of deals) has been temporarily relaxed, subject to ensuring checks and balances such as email confirmations or other systems having audit trail.
2. Reduction in Compliance Burden on Listed Entities
In addition to the relaxations granted on March 19, 2020 (our Client Alert covering this is accessible here), SEBI has, by its circulars dated March 23, 2020 and March 26, 2020, granted further relaxations from certain compliance requirements under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘Listing Regulations’) to listed entities with immediate effect. Some of the key features are set out below:
(a) 60 days’ extension in relation to cut off date for issuance of non-convertible debentures (‘NCDs’), non-convertible redeemable preference shares (‘NCRPS’) or commercial papers (‘CPs’) and for providing audited financials as part of the offer documents;
(b) 45 days’ extension for disclosure of half yearly financial results and 30 days’ extension in relation to disclosure of yearly financial results by issuers of NCDs, NCRPS and CPs;
(c) 60 days’ extension for initial disclosure in relation to identification as ‘Large Corporates’ (‘LCs’) and 45 days’ extension for annual disclosure in relation to incremental borrowings by LCs;
(d) In relation to issuers of municipal debt securities (‘MDS’): (i) 45 days’ extension for half yearly filing of investor grievance report; (ii) 45 days’ extension for quarterly filing of accounts maintained by issuers of MDS under SEBI (Issue and Listing of Municipal Debt Securities) Regulations, 2015; and (iii) 30 days’ extension for filing of half yearly financial results;
(e) 1 month extension for: (i) filing certificate from practicing company secretary on timely issue of share certificates; and (ii) holding of annual general meeting (‘AGM’) for financial year 2019-20 by the top 100 listed entities by market capitalization;
(f) 3 months’ extension for conducting meetings of nomination and remuneration committee, stakeholders relationship committee and risk management committee;
(g) Exemption till May 15, 2020 from publication of information in newspapers as required under Regulation 47 of the Listing Regulations;
(h) The effective date of operation of the SEBI Standard Operating Procedure (‘SoP’) (introduced by SEBI by way of circular January 22, 2020) on imposition of fines and other enforcement actions for non-compliances with provisions of the Listing Regulations has been extended and will now come into force from compliance periods ending on or after June 30, 2020 and in the meanwhile, the SoP circular dated May 3, 2018 would continue to apply till such date; and
(i) The relaxations granted by SEBI on March 19, 2020 in relation to other common obligations prescribed under Chapter III of Listing Regulations have also been extended to issuers of NCDs and NCRPS.
3. Reduction in Compliance Burden under the Takeover Regulations
SEBI, by its circular dated March 27, 2020, has granted temporary relaxation from certain compliance requirements under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (‘Takeover Regulations’) with immediate effect by extending the due date for filing the disclosures under Regulations 30(1), 30(2) and 31(4) for the financial year ending March 31, 2020, from April 15, 2020 to June 1, 2020. These are the continual disclosure requirements relating to:
(i) shareholding and voting rights of persons who (together with persons acting in concert) hold shares or voting rights entitling exercise of 25% or more of the voting rights in a listed entity;
(ii) shareholding and voting rights of promoter (together with persons acting in concert) of every listed entity; and
(iii) encumbrances made by promoters (together with persons acting in concert) other than those already disclosed during the financial year; in each case, as on the financial year end.
4. Temporary Relaxation to CRAs from Certain Compliances
SEBI, by its circular dated March 30, 2020 and considering the moratorium permitted by the Reserve Bank of India (‘RBI’) on loan servicing, working capital facilities, etc. for 3 months, has permitted the credit rating agencies (‘CRAs’) to create differentiation in treatment of defaults based on its assessment of the cause behind the default. It has permitted CRAs to not consider a default as such if the delay in payment of interest / principal has arisen solely due to the lockdown conditions. SEBI has extended this relaxation till the period of moratorium by RBI. The circular further relaxed the timelines for the compliance of rating action / issue of press release by CRAs arising out of its circular dated June 30, 2017. It has also extended the timelines for CRAs for making their annual and semi-annual disclosures on their websites for the period ended March, 2020 by 30 days.
5. Temporary Relaxation for REITs and InvITs
SEBI, by its circular dated March 23, 2020, has provided certain temporary relaxations to real estate investment trusts (‘REITs’) and infrastructure investment trusts (‘InvITs’) by extending the due date for regulatory filings and compliances for REITs and InvITs for the period ending March 31, 2020 by 1 month over and above the timelines prescribed under the SEBI (REIT) Regulations, 2014, SEBI (InvIT) Regulations, 2014 and the circulars issued thereunder.
6. Exemption to Certain Entities from Temporary Closures
SEBI, by its circular dated March 24, 2020, has exempted the following entities providing capital and debt market services from temporary closures as directed by the Ministry of Home Affairs through its order dated March 24, 2020 – recognized stock exchanges, recognized clearing corporations, depositories, custodians, mutual funds, asset management companies, stock brokers, trading members, clearing members, depositories participants, registrar and share transfer agents, credit rating agencies, debenture trustees, foreign portfolio investors, portfolio managers, alternative investment funds and investment advisers. Further, SEBI has also exempted any other entities and regulated activities as notified by SEBI from such temporary closure. SEBI has also declared that the head office / regional offices / local offices of SEBI will also function with minimum number of employees.
7. Continuation of Phase-II of UPI with ASBA
SEBI, by its circular dated March 30, 2020, has directed the continuation of the implementation of phase-II of the Unified Payments Interface (‘UPI’) with Application Supported by Block Amount (‘ASBA’) till further notice, effectively further extending the timeline from March 31, 2019 till a date to be subsequently notified.
8. Temporary Relaxation in Processing of Documents Pertaining to FPIs
SEBI, by its circular dated March 30, 2020, has relaxed certain requirements under the operational guidelines for Foreign Portfolio Investors (‘FPIs’) & Designated Depository Participants (‘DDPs’) issued under SEBI (FPI) Regulations, 2019 for FPI applicants. Accordingly, DDPs & custodians may consider and process the requests for registration / continuance / KYC / KYC review and any other material change on the basis of scanned version of signed documents (instead of originals) and copies of documents which are not certified, received from:
(a) e-mail IDs of their global custodians / existing clients where these details are already captured in records; or
(b) e-mail IDs of new clients received from domains which are duly encrypted with transport–layer security (TLS) or similar encryption or if the documents are password protected.
These documents may be uploaded on KYC registrations agencies and the other intermediaries may rely on these documents.
The relaxations are applicable till June 30, 2020.
9. Relaxation in Compliance with Requirements Pertaining to Portfolio Managers
SEBI, by its circular dated March 30, 2020, has extended the timelines by 2 months for: (a) monthly reporting to SEBI by portfolio managers for the periods ending March 31, 2020 and April 30, 2020; and (b) the applicability of SEBI circular dated February 13, 2020 on ‘Guidelines for Portfolio Managers’ pertaining to charging of upfront fees, brokerage costs, operating expenses and exit load to clients by portfolio managers (which was proposed to come into effect on May 1, 2020).
10. Relaxation in Compliance with Requirements Pertaining to AIFs and VCFs
SEBI, by its circular dated March 30, 2020, has extended the due date for regulatory filings for Alternative Investment Funds (‘AIFs’) and Venture Capital Funds (‘VCFs’) for the periods ending March 31, 2020 and April 30, 2020 by 2 months, over and above the timelines prescribed under SEBI (AIF) Regulations, 2012 and the circulars issued thereunder.
11. Extension of Deadline for the Implementation of the Stewardship Code for MFs and AIFs
SEBI, by its circular dated March 30, 2020, has extended the deadline for the implementation of its circular dated December 24, 2019 for mutual funds and all categories of alternative investment funds (‘Stewardship Code for MFs and AIFs’) from April 1, 2020 to July 1, 2020. As a background, stewardship responsibilities include monitoring and actively engaging with investee companies on various matters including performance (operational, financial, etc.), strategy, corporate governance (including board structure, remuneration, etc.), material environmental, social, and governance (ESG) opportunities or risks, capital structure, etc.
12. SAT to Remain Closed till April 14, 2020
Securities Appellate Tribunal (‘SAT’), by its notification dated March 30, 2020, has stated that SAT will remain closed from April 1, 2020 till April 14, 2020. All interim orders under operation will remain in force till the next date of hearing.
For further information, please contact:
Zia Mody, Partner, AZB & Partners