TLDR: The Securities and Exchange Board of India (SEBI) convened its 208th board meeting on December 18, 2024, introducing significant regulatory reforms aimed at enhancing market integrity and investor protection. This article provides an in-depth overview of the key decisions made during the meeting.

 

1. Stricter Norms for SME IPOs

SEBI has implemented more stringent regulations for Small and Medium Enterprises (SMEs) seeking to go public, aiming to ensure that only financially sound SMEs enter the IPO market.

  • Eligibility Criteria: SMEs must now demonstrate an operating profit of at least ₹1 crore from operations in any two of the preceding three financial years to qualify for an Initial Public Offering (IPO).
     

  • Offer for Sale (OFS) Limitations: The OFS component in SME IPOs is capped at 20% of the total issue size. Additionally, selling shareholders are permitted to divest up to 50% of their pre-issue holdings.
     

  • Use of IPO Proceeds: Proceeds from SME IPOs cannot be utilized to repay loans taken by promoters, promoter groups, or related parties, ensuring funds are directed towards business growth and operations.

These measures are designed to enhance transparency and protect investors by ensuring that only SMEs with a proven track record of profitability can access public funds.
 

2. Overhaul of Merchant Banking Regulations

To strengthen the regulatory framework for merchant bankers, SEBI has approved several amendments:

  • Separation of Non-Core Activities: Merchant bankers are required to segregate non-core activities into distinct entities with different brand names, preventing potential conflicts of interest.

  • Liquid Net Worth Requirements: A liquid net worth of 25% of the minimum net worth requirement is now mandatory for merchant bankers, ensuring financial stability.

  • Underwriting Limits: Underwriting commitments are limited to 20 times the liquid net worth, mitigating excessive risk exposure.

These reforms aim to enhance the regulatory standards for merchant bankers, promoting greater accountability and reducing systemic risks in the financial market.
 

3. Expansion of Insider Trading Regulations

SEBI has broadened the scope of insider trading norms by including additional categories under Unpublished Price Sensitive Information (UPSI):

  • New Inclusions: UPSI now encompasses company ratings changes, proposed fundraising activities, agreements impacting management control, evidence of company fraud, and changes in Key Managerial Personnel (KMP).

By expanding the definition of UPSI, SEBI aims to curb insider trading activities more effectively, ensuring a fairer and more transparent market environment.
 

4. Simplified Debt Listing Rules

To facilitate easier and faster fundraising through bonds, SEBI has eased norms for listing debt securities:

  • Dematerialization Mandate: Issuance and transfer of listed or to-be-listed debt instruments are mandated to be in dematerialized form, enhancing transparency and efficiency.

This move is expected to streamline the process of raising debt capital, making it more efficient and accessible for issuers.
 

5. ESG Reporting Requirements Deferred

Recognizing the need for a more manageable implementation period, SEBI has approved a one-year deferral on Environmental, Social, and Governance (ESG) disclosures for the value chain, allowing companies additional time to comply.

This deferment acknowledges the challenges companies face in gathering comprehensive ESG data across their value chains, providing them with the necessary time to establish robust reporting mechanisms.
 

6. Enhanced Surveillance of Trading Platforms

SEBI has issued advisories against trading in unlisted securities via unauthorized platforms, emphasizing that only recognized stock exchanges are authorized to facilitate such transactions.

This advisory aims to protect investors from potential fraud and ensure that all trading activities occur within the regulatory framework, maintaining market integrity.
 

7. Optional Same-Day Settlement for Top 500 Stocks

In a move to enhance market liquidity, SEBI announced the expansion of the optional same-day (T+0) settlement cycle to include the top 500 stocks by market capitalization, effective January 31, 2025.

This initiative is expected to reduce settlement risks and improve cash flow efficiency, benefiting both investors and market participants.

 

Conclusion

SEBI's December 2024 board meeting introduced a series of reforms aimed at strengthening the regulatory framework, enhancing market integrity, and protecting investor interests. These measures are expected to foster a more transparent and efficient financial market environment in India.