Finsec Dialogue is a monthly event which will discuss topical issues in the field of financial regulation, including securities and investment laws. These sessions would focus on practical issues faced by market participants, highlight legal ambiguities and explore ways to navigate the law. These sessions are geared towards financial market professionals and legal and compliance officials. Discussions would be led by a team of two speakers from Finsec Law Advisors. Participants would be able to connect over a telephonic conference call.

Edition XVI

May 30, 2017

Global Depository Receipts: SEBI's Jurisdiction and Increasing Scrutiny

For long now, listed companies in India have been using GDRs to raise foreign funds. GDRs are depository receipts which are issued to non-resident investors based on underlying equity shares of the Indian company. However, some issuer companies have misused this route for round tripping or routing black money into India. While SEBI's jurisdiction over GDRs was initially unclear, the Supreme Court, in Pan Asia Advisors v. SEBI (2015), unequivocally held that SEBI has the authority to regulate matters in relation to GDRs if it had an impact on Indian investors or the securities market in India. Subsequently, SEBI has been examining suspected irregularities in issuance and redemption of GDRs and has reportedly issued show cause notices to several entities. In this light, we can expect a number of final orders from the capital markets regulator in the coming weeks.

In this edition of Finsec Dialogue, we provided an overview of the concept of GDRs and their issuance; the Pan Asia Advisors case; the modus operandi typically used by certain issuer entities; and analysed the surrounding regulatory problems and their implications.

Edition XV

April 25, 2017

Securities law amendments in the Finance Act and recent developments under takeover laws

The Finance Act, 2017, which was recently notified, has amended certain provisions of the Securities and Exchange Board of India Act, 1992, and the Securities Contract (Regulation) Act, 1956. These amendments partially answer certain important questions of law, which were pending before the Supreme Court, relating to the power of SEBI adjudicating officers to fix the quantum of penalty in cases of violation of securities laws. In other developments, SEBI recently had occasion to interpret and rule on certain important concepts under the Takeover Code like the definition of 'control' and exemptions from making mandatory tender offers.

In this edition of Finsec Dialogue, we discussed the amendments to the SEBI Act and the SCRA and the impact of these changes as well as the rulings of SAT and SEBI on 'control' and exemptions under the Takeover Code.

Edition XIV

March 28, 2017

SEBI and Commodities Regulation: For a deeper and more mature commodities market

Pursuant to the merger between the FMC and SEBI, SEBI is now the regulator and torch bearer of the commodities derivatives market in India. If the recent statements of the new SEBI chairman are anything to go by, there will be greater focus and efforts on part of SEBI to introduce new market participants like AIFs, non residents, mutual funds, etc., and also newer products to create a deeper and more vibrant commodities derivatives market.

In this edition of Finsec Dialogue, we examined the major developments that have taken place in the regulation of commodities derivatives markets and what we can expect in the future.

Anniversary Edition

February 28, 2017

SEBI reforms over the last 12 months and the road ahead

SEBI is one of the most pro-active regulators we have in India today. SEBI, under the helm of the outgoing chairman, Mr. U.K. Sinha, has come out with various groundbreaking initiatives and reforms which will have a lasting impact on the capital markets in India in the years to come. Some of the initiatives like InvITs and ReITs will serve to deepen the capital markets and help investors to invest in new asset classes. On the reforms side, SEBI has kept up its push towards improving corporate governance and enhance investor protection by replacing the listing agreement with the SEBI (LODR) Regulations and has also successfully chaperoned corporate India to a new Insider Trading regimen. However, many challenges remain. The incoming Chairman, Mr. Ajau Tyagi, has his work cut out for him.

In this Anniversary Edition of Finsec Dialogue, we examined the most important initiatives and reforms rolled out by SEBI over the last one year or so and analyzed the impact they've had on corporate India. We also presented a wishlist for the new Chairman, Mr. Tyagi, on some of the initiatives/ reforms that we would like to see SEBI undertaking over the next one year.

Edition XII

January 31, 2017


Role of SEBI in Schemes of Arrangement involving Listed Companies

Mergers and acquisitions were always presumed to be the exclusive domain of corporation laws and company courts. In 2013, the Securities and Exchange Board of India decided to introduce a pre-approval requirement for schemes of arrangement involving listed companies in order to protect minority investors of listed companies and to prevent back-door listing of unlisted companies. This role was extended further under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. In a recent board meeting, the SEBI Board has decided to introduce disclosure norms for such unlisted companies and minimum institutional shareholding requirements for the merged entity.

In this edition of Finsec Dialogue, we examined the role of SEBI in regard to schemes of arrangement; discussed the practical issues faced by companies due to the existing obligations imposed by SEBI and the impact of the recent changes.

Edition XI

December 27, 2016


SEBI (Prohibition of Insider Trading) Regulations, 2015: 18 Months in Review

The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015, came into force over 18 months ago overhauling the regulatory regime governing insider trading. Market participants faced several practical issues at the time, some of which have been addressed since. However, several developments over the last few months have brought the topic back into light. These include issues relating to communication of information on a need-to-know basis, applicability of the regulations to trading through a discretionary portfolio manager, and restrictions on trading by employees of AMCs and trustees of mutual funds.

In this edition of Finsec Dialogue, the speakers examined the implications of some of the new and continuing practical issues faced by market participants in relation to the Insider Trading Regulations.

Edition X

November 29, 2016


Role of Independent Directors: Lessons from the Tata - Mistry Saga

Appointment of independent directors is one of the foremost principles accepted worldwide towards ensuring corporate governance in listed companies. Independent directors act as a counterbalancing factor to the dominant control exercised by the promoters/ large shareholders of a company. They typically do not have an executive role in the company but act as watchdogs over the affairs to ensure effective governance. They have a fiduciary duty towards the company and its shareholders and are obliged to protect their interests.

In this edition of Finsec Dialogue, role of independent directors in a listed company were examined including their rights, obligations and duties in running the affairs of the company. The session highlighted and addressed the role of an independent director in special situations such as change in control, conflict of interest, etc. with references drawn from the ongoing tussle between Tata and Mistry over the control of the Tata group of companies.

Edition IX

October 25, 2016

SEBI Consultation Paper on the Investment Advisers Regulations

Under the existing regulatory framework, persons providing investment advice for a consideration are required to be registered under the SEBI (Investment Advisers) Regulations, 2013. The IA Regulations provides exemption from registration to mutual fund distributors and certain other registered intermediaries, such as brokers and portfolio managers, who render advisory services incidental to their primary activity. On October 07, 2016, SEBI issued a consultation paper on "Amendments/ Clarifications to the IA Regulations" proposing various amendments to the IA Regulations. One such recommendation, if implemented, would require all persons rendering investment advice to register with SEBI irrespective of whether the advice being rendered is part of the primary business activity or merely incidental to it.

In this edition of Finsec Dialogue, the speakers provided an overview of the proposals contained in the consultation paper, and discussed and examined some of the significant implications.

Edition VIII

September 27, 2016

Control in Securities law: Brightline Test not really Bright?

Determining whether a person is exercising 'control' over a company has been of significant importance in securities law. The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, imposes a three point test for control. Persons who have the right to appoint a majority of the directors of a company, control the management of a company, or control the policy decisions of a company, are said to be in control. This definition, containing subjective criteria, permits significant scope for interpretation and has created discord among market participants who would prefer simpler numerical thresholds. In this light, SEBI is presently considering a brightline test for determining control and has come out with a discussion paper on March 14, 2016.

In this edition of Finsec Dialogue, the speakers provided an overview of the developing jurisprudence on the concept of 'control' as per securities law; discussed SEBI's proposal to introduce a brightline test and, if implemented, whether it would open a new Pandora's box.

Edition VII

August 30, 2016

Mutual Funds Products and Distribution: Issues and Challenges

The mutual funds industry has for long been a subject of wide discussion in terms of market penetration and financial inclusion. Although the assets under management has grown significantly, the percentage of gross financial savings invested in mutual funds is still small. In the past few months the regulatory heat has been increasing and there are various factors affecting the growth of the mutual funds sector.

In this session of Finsec Dialogue, an external speaker was introduced for the first time: Mr. G. Pradeepkumar. Mr. Pradeepkumar is the Chief Executive Officer (CEO) of Union KBC Mutual Fund with an experience of more than 22 years in investment funds business in India and abroad. He shared his views on both industry level and regulatory challenges facing the mutual fund industry, and the road ahead. The discussion also covered policy and structural changes necessary for growth of the mutual fund sector.

Edition VI

July 26, 2016

Liabilities for Misstatements in a Prospectus

With the recent uptick in the IPO market and increased number of IPO filings in the past year, attention towards disclosures in prospectus have once again regained importance. Traditionally, advisers and issuers have relied on international best practices towards ensuring true and accurate disclosures in prospectuses. However, over the past couple of years, SEBI has sanctioned companies, their directors and merchant bankers over misstatements in prospectuses. The Securities Appellate Tribunal has also passed orders in this regard.

In this session of Finsec Dialogue, an overview of the developing jurisprudence on what constitutes a misstatement under Indian laws was provided and the nature of liabilities attached to it were discussed. Recent examples of penalties imposed by SEBI and rulings of SAT in relation to misstatements were discussed as well. Further, liabilities attached to each of the players involved in an IPO, such as, the issuer company, its directors (including independent directors), its promoters, merchant bankers and experts, were highlighted.

Edition V

June 21, 2016

P-notes and highlights from the latest SEBI Board Meeting

A foreign portfolio investor registered with SEBI is permitted to issue offshore derivative instruments (P-Notes) to offshore investors seeking exposure in Indian securities. Due to concerns of money laundering, terrorism financing, round tripping, etc. SEBI has been regularly undertaking measures to tighten the norms regarding disclosures, KYC and identity of the beneficial owners of P-Notes. In light of the concerns raised by the report of the Special Investigations Team, the SEBI Board, on May 19, 2016, has proposed certain additional measures towards increasing transparency in issuance and trading of P-Notes. In this edition of Finsec Dialogue, the regulatory framework governing P-notes, issues faced by market participants and the impact the latest measures will have on their viability were discussed.

Further, SEBI held its latest board meeting on June 17, 2016, wherein it decided to issue a consultation papers for making amendments to the SEBI regulations on Portfolio Managers and Real Estate Investment Trusts. These developments were discussed as well.

Edition IV

May 24, 2016

Settlement of SEBI Proceedings – Concept and Process

Under securities laws, SEBI can pursue two streams of enforcement actions i.e. a) administrative/civil or b) criminal. Administrative/ civil actions include directions such as remedial orders, cease and desist orders, suspension or cancellation of certificate of registration and imposition of monetary penalty etc. In the interest of ensuring appropriate sanction and deterrence without resorting to litigation, securities regulators around the world settle administrative/ civil cases by consent/ settlement orders. In essence, a settlement mechanism allows a person who has prima facie been found to have violated securities laws, to settle such a finding with or without admission or denial of guilt.

While SEBI has been passing consent orders for a considerable period of time, a definitive regulatory structure was put in place with the framing of the Securities and Exchange Board of India (Settlement of Administrative and Civil Proceedings) Regulations, 2014; which came into force retrospectively from April 20, 2007, based on statutory changes in 2013. In this session, the concept and process of settlement of SEBI proceedings was discussed.

Edition III

April 26, 2016

Investment Advisers and Research Analysts – Regulatory Structure and Practical Issues

SEBI introduced Investment Advisers and Research Analysts as two new categories of regulated intermediaries in 2013 and 2014, respectively. The SEBI (Investment Advisers) Regulations, 2013 and the SEBI (Research Analysts) Regulations, 2014 made it mandatory for all persons to obtain a certificate of registration from SEBI prior to engaging in the business of providing investment advice or publishing research reports. The primary regulatory objective behind these norms was to reduce potential conflict between the advisory/research function and the distribution function of securities market intermediaries. Broadly, these regulations prescribe various conditions for registration, capital adequacy, risk profiling, client suitability, disclosures standards, source of revenue etc.

However, given that investment advisory and research functions are intrinsically linked to other intermediation businesses such as brokerage, portfolio management, securities distribution, investment banking etc., understanding the applicability and implications of these regulations has become crucial for securities market intermediaries. The practical issues surrounding Investment Advisers and Research Analyst regulations and the impact of these regulations on the existing businesses were discussed.

Edition II

March 29, 2016

Exit of Regional Stock Exchanges: Implications on Exclusively Listed Companies 

SEBI, in the year 2012, had mandated all stock exchanges to have an annual trading turnover of Rs. 1,000 crores for them to continue operations. SEBI gave the recognized stock exchange two years to comply or exit the business. Pursuant to this policy, more than 15 regional stock exchange have since been de-recognized. This has immense implications on various stakeholders, especially for companies which were listed exclusively on regional stock exchanges. It is estimated that there are more than 3000 such companies with market capitalization running into thousands of crores.

As there companies would no longer be listed 'companies', there would be no formal market for trading on their shares. Further, public shareholders would be stuck with their investments with no institutionalized avenue to exit. The implications of the exit mechanism on exclusively listed companies and the avenues available to all stakeholders were discussed.

Edition I

February 16, 2016

SEBI (Prohibition of Insider Trading) Regulation, 2015

SEBI recently overhauled the insider trading norms and notified the SEBI (Prohibition of Insider Trading) Regulation, 2015, on May 15, 2015. The inaugural session of Finsec Dialogue was on the new regulations. Apart from discussing the significant features of the new norms, practical issues faced by market participants were discussed.