Sebi board to dicuss Franklin wind-up move, MF liquidity
The capital markets regulator, Securities and Exchange Board of India (Sebi), is likely to discuss legal issues concerning refunding investors of Franklin Templeton Mutual Fund (MF) and the status of the special audit against the fund house during its board meeting on June 25.
The regulator could also apprise the board of details on the extent of redemption mutual fund houses are facing and the liquidity position of their debt schemes, said two persons in know. Sebi’s eightmember board will for the first time hold the meeting via video conferencing in light of the Covid-19 pandemic.
“Ahead of the scheduled board meet, senior Sebi officials have had an extensive discussion over the mutual fund liquidity issue, redemption pressures, and measures to contain the fallout,” said another person. The board will be apprised of recent developments related to Franklin MF and the court cases where Sebi has been asked to respond. Multiple court cases have been filed by the investors against the fund house, challenging the whole process of winding up of its six debt schemes.
In a related matter, the Supreme Court dismissed a plea filed by seven Delhibased investors.
Sebi last week had ordered its empanelled auditor, Choksi and Choksi, to examine certain aspects, such as the investment rationale, risk-management measures while auditing Franklin MF'S schemes and the bond issuers. The regulator is of the view that certain investments by the fund house were not meeting the mutual fund's model code of conduct. The audit report is expected to be submitted by mid-july.
Franklin Templeton’s decision has created a fear among investors, triggering redemption pressures, particularly in credit schemes.
“Sebi is mulling safeguards to mitigate risks arising from heightened redemptions,” said another source, adding that the Reserve Bank of India's intervention would be also required to handle such eventuality.
Apart from these, the board would discuss the Covid-19 measures which were being announced and their impact on the crisis-hit sectors. Further, it may also approve the consultation paper on overseas listing, following the government announcement as part of the stimulus package.
In December 2018, the Sebi committee had submitted its 26-page report suggesting 10 overseas jurisdictions based on the strength of their respective anti-money laundering frameworks. These countries/regions include the US, the UK, China, Japan, South Korea, and Hong Kong. Sources say the regulator may tweak the recommendations, especially those on investments and listing from neighbouring jurisdictions.
The seven-member panel had also recommended that only high-quality companies be allowed to list overseas to ensure adequate liquidity and reduce the scope of manipulation.
Under the current tax laws, income earned from the transfer of equity shares of an unlisted Indian company listed on a foreign stock exchange is subject to capital gains tax in India.