sebi current affairs: february, 2018 (part i) · •sebi is considering allowing exchange-traded...
TRANSCRIPT
SEBI Current Affairs: February, 2018 (Part – I)
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Relevant for SEBI Grade A 2018 Examination
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Rules on cryptocurrencies should be out soon: Sebi chief
• Amid continuing volatility in bitcoinprices and growing concerns aboutinvestors’ safety,
• Sebi chairman Ajay Tyagi saidregulations on cryptocurrenciesshould be out soon and the rolevarious regulators will play is beingfinalized.
• Mr. Tyagi is also part of thecommittee formed by thegovernment to examine the prosand cons of virtual currencies (VCs).
VCs are stored in digital or electronic format, making them vulnerable to
hacking, loss of password and malware attack, which may also result in
permanent loss of money. As of now, finance minister has said that
cryptocurrencies are not a legal tender.
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Budget and Corporate Bonds
• Union Finance Minister proposedthat corporate sector should nowraise at least one-fourth of theirfunding requirement through bonds.
• In his speech, FM also said that, mostregulators in India permit bondswith the ‘AA’ rating only as eligiblefor investment. “It is now time tomove from ‘AA’ to ‘A’ grade ratings.
• The government and concernedregulators will take necessary action,he said.
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Bond Rating
A bond rating is a grade given to a bond that indicates its credit quality. Thebond rating system helps investors determine a company's credit risk.
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Sebi chief warns: Mutual funds are no substitute for bank returns
• Mutual funds investment is not anysubstitution for bank returns.
• If people are shifting from banks tomutual fund to that extent it is not anassured return
• but this is right way to come to ifpeople want to come to capitalmarkets.
Mutual fund route is whereprofessional investment managerstake the decision to invest your moneybut there is no issue of panic. If theyare investing in the capital markets theextant risk would be there.
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Mutual Funds
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Sebi may allow metal ETFs to attract retail investors
• Sebi is considering allowing exchange-traded funds (ETF) based on metals likesilver and platinum
• to encourage participation of retail andinstitutional investors in these marketinstruments.
• The move is expected to help investorsparticipate in a market upside with lowerrisk and volatility, and spread their riskbetter.
• it would make the 'price discovery'mechanism of metal markets more robust.
In global markets ETFs are based on equities,
commodities and metals but in India these funds are based
on equity and gold only.
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Exchange Traded Funds
An ETF, or exchange-traded fund, is a marketable security that tracks anindex, a commodity, bonds, or a basket of assets like an index fund.
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SEBI gets teeth to act against exchanges, new market outfits
• As part of the proposed amendments inthe Finance Bill 2018,
• government has given more power toSEBI to impose monetary penalties onimportant market intermediaries such asstock exchanges and clearing corporationsand
• also act against newer categories ofparticipants likes investment advisers,research analysts, real estate investmenttrusts (REITs) and infrastructureinvestment trusts (InvITs).
Punitive action possible now; only warnings
allowed earlier
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Increased Powers with SEBI
• The proposed amendments to the SEBI Act and the Securities Contracts(Regulation) Act now allow the SEBI;
• to impose a monetary penalty of at least ₹5 crore on stock exchanges,clearing corporations and depositories for non-compliance with regulatorynorms.
• The penalty can go up to ₹25 crore or three times the amount of gainsmade out of such failure or non-compliance.
• The amendments also allow SEBI to act against entities that furnish falseor incomplete information to the regulator. Earlier, it could act only if theentity did not furnish any information.
• The whole-time members of SEBI have also been given additional powersto act against wrongdoers.
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SEBI, stock exchanges probe equity, derivatives trade violation of PSU banks
• SEBI and stock exchanges are lookinginto possible manipulation in equityand derivatives trade of some publicsector banks (PSBs);
• in the wake of circulation of a fakeletter purportedly for misleading theinvestors.
• It is clarified by SEBI that no suchletter is issued and NSE has notreceived any such letter from SEBI.
The fake notice bearing theregulator’s logo and purportedlyaddressed to the National StockExchange (NSE) was circulated onvarious WhatsApp groups andother social media platforms.
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Sebi allows use of open market sale, QIPs to meet MPS norms
• SEBI has provided two additionalmeasures to listed companies to ensurethese firms comply with 25 per centminimum public shareholding norms.
• Sebi allowed listed firms to allot shares toqualified institutions placement (QIP).
• The regulator also allowed promoters orpromoter groups to sell up to two percent of the total paid-up equity sharecapital of the listed firm in the openmarket subject to up to five times averagemonthly trading volume of the stock.
Under Sebi norms, every listedfirm will need to maintain apublic shareholding of at least25 per cent.
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Qualified Institutional Placement
• Qualified institutional placement (QIP) issimply the means whereby a listed companycan issue equity shares and convertiblesecurities.
• Sebi introduced the QIP process in 2006, toprevent listed companies in India fromdeveloping an excessive dependence onforeign capital.
• For the issuing company, QIPs are lesscumbersome than IPOs and FPOs.
• QIP is also a less expensive mode of raisingcapital than, say, an IPO, FPO or rights issue.
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SEBI asks fund houses to disclose TER on daily basis
• In a bid to bring in increased transparency in mutualfund schemes and make them more investor friendly,
• SEBI has asked fund houses to prominently discloseon a daily basis the total expense ratio (TER) of allschemes under a separate head on their website.
• To increase transparency the regulator has now askedasset management companies to communicate toinvestors of the scheme through email or SMS anychange or increase in the base TER charged to anyscheme
• atleast three working days prior to effecting suchchange and be prominently displayed on the website.
The circular will beapplicable immediatelyfor any new schemes tobe launched and for allexisting schemes fromMarch 1, 2018.
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Total Expense Ratio
Total expense ratio (TER) is ameasure of the total costsassociated with managing andoperating an investment fund,such as a mutual fund.
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Sebi permits clearing corporations at IFSC to accept cash as trade collateral
• SEBI has allowed clearing corporations atinternational financial services centres (IFSCs)to accept cash and cash equivalents ascollateral for trades in all product categories.
• Cash and cash equivalents will include majorforeign currencies as may be decided by theclearing corporation from time to time, termdeposit receipts and bank guarantees issued bybank branches located in IFSC.
• However, cash and cash equivalents wouldform at least 50% of the total liquid assets atall times.
Gujarat International Finance Tec-City (GIFT) has been set up by thestate government as India’s firstIFSC. Sebi, in March 2015, issueda detailed set of guidelines forestablishing IFSCs.
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Clearing Corporations
Clearing Corporation carries out the functions of clearing, settlement,collateral management and risk management for various trading segmentsof exchange.
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Framework to ensure smooth transition in mutual funds
• In order to ensure smooth transition at mutualfund houses, Sebi said its new framework withregard to tenure of independent trustees aswell as directors.
• will be complied with in a phased manner,within a period of two years.
• Further, Sebi said auditors who have conductedaudit of mutual fund for more than nine yearsmay continue till the end of 2018-19.
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SEBI New Norms for Mutual Funds
• Under the norms, an independent trustee, an independent directorand an auditor will hold office for a maximum of two terms, witheach term not exceeding a period of five consecutive years.
• Such entities will not hold office for more than two consecutiveterms.
• However, they would be eligible for re-appointment after a cooling-off period of three years in the case of independent trustee as wellas independent director and five years for auditors.
• These frameworks were part of Sebi’s efforts to strengthen thegovernance structure of mutual funds.
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Mutual funds cannot charge expenses in lieu of exit load: Sebi
• SEBI in two circulars, said thatexpenses in lieu of exit load will notbe allowed for close-ended schemesand
• incentives allowed for beyond thetop 15 cities or B-15 cities wouldnow be expanded to B-30 cities toincrease penetration in smallertowns.
• This would help bring down theoverall expenses charged to mutualfund investors.
Additional TER of up to 30 basis points would be allowed
for inflows from beyond top 30 cities instead of beyond top 15
cities.
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Mutual Fund Schemes & Expenses
• Currently, fund houses can charge a maximum of 2.5% of assets undermanagement (AUM) for managing an equity scheme.
• On top of this, 20 basis points (of AUM) can be charged in lieu of an exit fee,and another 30 basis points for promoting mutual fund penetration in smalltowns.
• India’s average equity expense ratio or Total Expense Ratio (TER) of 2.22% isamong the highest in the world.
• The additional expenses allowed for penetration in tier-2 cities was introducedin 2012.
• Asset management companies (AMCs) will be able to charge the additional 30basis points if 30% of the gross new inflow in a scheme or 15% of the total AUMof a scheme come from beyond the top 30 cities instead of beyond top 15 cities.
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Sebi, exchanges beef up risk management surveillance systems
• Sebi and exchanges have beefed up their riskmanagement and surveillance systems in the wakeof a global stock market rout triggering a sharpplunge in Indian equities.
• There have been concerns about several stocks inIndia, mostly midcap and smallcap beingovervalued and a correction was probably longoverdue.
• Moreover, investor sentiment has remainedsluggish after the government announced in theBudget a proposal to levy 10 per cent long-termcapital gains (LTCG) tax on equities.
MCQ’s
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1. Which of the following is/are correct w.r.t. cryptocurrencies in Indian context?
a) They are stored in digital or electronic format
b) Finance minister of India has said that cryptocurrencies are a valid legal tender
c) Both are correct
d) None of the above
2. Which of the following bond rating denotes the highest quality of bond instrument?
a) AAA
b) AA
c) A
d) All of the above
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3. Which of the following may be tracked by an Exchange Traded Fund (ETF)?
a) Index
b) Commodity
c) Bonds
d) All of the above
4. Which is incorrect regarding Qualified Institutional Placement (QIP)?
a) Sebi introduced the QIP process in 2006
b) For the issuing company, QIPs are less cumbersome than IPOs and FPOs
c) It is a mechanism whereby a listed company can issue equity shares and convertible securities
d) All are correct
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ANSWERS1. A2. A3. D4. D
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SEBI Current Affairs - Feb. 2018
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Thank You! Happy Learning!
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