Sebi plans steps to tighten its settlement norms; boost civic bonds

Defaulters, whose application for settlement of cases are delayed, would be required to pay a non-refundable amount of ₹2,000 seeking condonation of the delay

NEW DELHI: In slew of reform measures, Sebi plans to tighten its settlement norms by making the suspected defaulters pay more for any delay on their part, while fresh steps would be taken to popularise new investment vehicles like municipal bonds, REITS and Invits.

Also among the proposed measures, which are to be considered by Sebi board during its meeting on January 14, is allowing mutual funds to invest in a new class of ‘Alternative Securities’, which would initially comprise of Real Estate and Infrastructure Investment Trusts.

Defaulters, whose application for settlement of cases are delayed, would soon be required to pay a non-refundable amount of Rs 2,000 seeking condonation of the delay. Further, such entities would have to pay additional money in case there is more than 60 days delay in applying for settlement, a senior official said.

Currently, settlement applications at pre-show cause notice stage and on suo-moto basis are treated equally. Preshow cause notice in instances such as during investigation or on issue of settlement notice after completion of probe and before initiation of enforcement action.

As a result, the official said there is little incentive for defaulters to come forward on their own before investigation or enforcement action.

Among others, defaulters would be given 15 days time from the date of intimation of settlement amount to remit the same.

The Proceeding Conversion Factor (PCF), used to arrive at the settlement amount, would be lower for entities filing voluntary or suo-moto settlement applications. With respect to cases of fraudulent and unfair trade practices, the reduction in PCF would be decided on the basis of evidence, disclosure and assistance provided during the investigation.

The rules pertaining to calculation of the indicative amount for settlement are also likely to be amended.

In order to provide diversified options for investors, Sebi has proposed ‘Alternative Securities’ as a new asset class for investments by mutual funds. For now, it would have only REITS and Invits.

The move is likely to help in attracting more number of investors into Real Estate and Infrastructure Investment Trusts.

A mutual fund would be permitted to invest only up to five per cent of their net asset value in units of a single issuer of alternative securities. The limit would be 10 per cent for total exposure to alternative securities. These caps would not be applicable in case of index funds.

To boost municipal bonds, also known as muni bonds, Sebi is planning to amend the relevant regulations in order to provide a criteria that is alternative to ‘net worth’ of the municipalities.

The concept of net worth basically applies to a corporate entity and might not be applicable to a municipality in absolute terms. To gauge the financial capacity of a municipality, an alternative criteria is being worked out, the official said.

According to the proposal, a municipality planning to issue bonds should not have negative net worth or material deficit as per its income and expenditure statement for three preceding financial years. Sebi could also come out with any financial criteria from time to time. The board, during its meeting this week, would also discuss the status of amendments to regulations related to REITS and Invits.

Amendments to these regulations were notified in November last year and subsequently two Invits have filed their offer documents with Sebi.