New Delhi, July 13 -- The Securities and Exchange Board of India has amended the regulations governing its employees, tightening conflict-of-interest and disclosure norms and easing rules related to holdings in real-estate investment trusts (REITs) and infrastructure investment trusts (InvITs) and unlisted assets.
The revisions come after former SEBI chief Madhabi Puri Buch faced conflict-of-interest allegations from the now-shuttered US short seller Hindenburg Research. Buch had denied the allegations.
Here is a quick explainer of the changes:
Who does this apply to?
The amendments, announced on June 11, were made to the SEBI (Employees' Service) Regulations. These regulations apply to the employees of the capital markets regulator and not to the chairperson and board members such as whole-time members and part-time members.
The chairperson and board members are governed largely by the SEBI Code on Conflict of Interests for Members of Board.
What has changed in conflict-of-interest norms?
The changes have been made through various amendments that place restrictions on investments and future employment, and mandate recusal procedures and disclosures.
According to the norms, SEBI employees or their family members cannot invest in assets mentioned under a new category. The "non-permitted investments" include equity, securities that can be converted to equity, and derivatives. They cannot also have more than 25% of their assets, by acquisition cost, in products offered by a single SEBI-regulated entity.
To manage conflict that may arise through employment, they have been asked to observe a cooling off period of two years after their employment with the regulator ends. They also have to declare within a month if they are negotiating for a new job or have agreed to take it on.
The employees have been asked to recuse themselves from proceedings related to entities with whom they have a conflicted relationship. A conflicted relationship includes employment of a family member in the entity's senior management, professional or relational interest in the entity, close friendship or association over the previous three years and "material interest" determined by the employee's investments.
What has changed in disclosures?
Disclosure requirements have now been specified and they are several.
The employees have to disclose to the Office of Ethics and Compliance (OEC) details of their family members, relatives and professional interests over the previous three years. These include details of immovable properties and financial assets held by them and their family members if these were acquired using the money received by the employee; details of renting out immovable properties; and details of non-permitted investments held by family members acquired with the money received from the employee, among other things.
Changes in asset holdings and rental agreements also have to be informed to the OEC, within set deadlines, subject to conditions.
While these are for internal disclosures, there will also be public disclosure of immovable properties held by officers of Grade F and Executive Directors.
What assets can they hold?
Employees can hold units of InvITs and REITs, and unlisted securities. If these unlisted securities do list, then the family members may continue to hold or dispose or manage them through discretionary portfolio management services.
Their spouses are allowed to hold or dispose of equity acquired through employee stock option plans, which are part of their pay package.
Employees are also allowed to invest through pooled vehicles that have schemes managed by an entity regulated by any of the other financial regulators.
Published by HT Digital Content Services with permission from VC Circle.