Sebi hikes PMS investment size to Rs50 lakh, tightens disclosure norms
20 November 2019
Markets regulator the Securities and Exchange Board of India (Sebi) has increased the minimum investment limit by clients in a portfolio management service (PMS) to Rs50 lakh from Rs25 lakh earlier. The regulator also tightened disclosure norms on loan defaults.
Base net worth requirement of portfolio managers has also been raised to Rs5 crore from Rs2 crore.
The regulator said the portfolio managers now cannot invest more than 25 per cent of their assets under management (AUM) in unlisted securities.
Market participants were of the view that the move will restrict the growth of PMS industry.
The new Sebi (Portfolio Managers) Regulations, 2019 enhances the eligibility criteria and defines the role of principal officer clearly. The enhanced eligibility criteria to be applicable to any employee with decision making authority relating to management of the clients’ portfolios.
A portfolio manager has to mandatorily employ minimum one person with defined eligibility criteria in addition to Principal Officer and Compliance Officer. Net-worth requirement of portfolio managers has been enhanced from Rs2 crore to Rs5 crore. Existing portfolio managers should meet the enhanced requirement within 36 months.
Minimum investment by clients of portfolio managers will be increased from Rs25 lakh to Rs50 lakh. Existing investments of clients may continue as such till end date of the PMS agreement or as specified by the board.
Discretionary portfolio managers will invest only in listed securities, money market instruments, units of mutual funds and such other securities/ instruments as specified by Semi from time to time.
Non-discretionary/ advisory portfolio managers will invest not more than 25 per cent of their AUM in unlisted securities. It has been decided to make the appointment of custodian mandatory for all the portfolio managers except for those providing only advisory services to clients. Off market transfers from/to clients’ accounts with certain exceptions to facilitate operational convenience will be restricted.
The board has approved the proposals with respect to rights Issue process and consequential amendments to the Semi (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations) and Sebi (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations) with an objective to significantly reduce the timeline for the completion of the rights Issue, as well as introduce the dematerialization and trading of rights entitlements (REs). The key proposals approved by the board are as follows:
- Reduction in the timeline for completion of the rights issue from the current ~T+55 days to ~T+31 days.
- Introduction of dematerialized Res and trading of Res on stock exchange platform.
- Shareholders holding shares in physical form will be required to provide details of demat account for credit of REs.
- ASBA facility made mandatory for all investors applying to rights issue.
The board also approved a proposal to extend the applicability of Business Responsibility Reporting (BRR) to top one thousand listed entities from top 500 listed companies at present.
Disclosure by listed entities of defaults on payment of interest / repayment of principal amount on loans from banks / financial institutionsIn order to address the gaps in availability of information with respect to defaults,
The board has, inter-alia, decided that in case of any default in repayment of principal or interest on loans from banks or financial institutions, which continues beyond 30 days from the pre-agreed payment date, listed entities shall, promptly, but not later than 24 hours from the 30th day, disclose the fact of such default. These provisions shall be applicable from 1 January 2020.
Semi had constituted a working group to review the Sebi (Portfolio Managers) Regulations, 1993 to suggest steps to be taken to safeguard the interest of investors and development of the investment product. Public comments were invited on the recommendations of the working group through a consultative paper. The board, after considering the recommendations of the working group, public comments received and proposals made thereon for amendment to the extant Sebi (Portfolio Managers) Regulations, approved issuance of Sebi (Portfolio Managers) Regulations, 2019.