The Securities and Exchange Board of India (Sebi) on Monday approved a comprehensive overhaul of its internal framework, addressing conflicts of interest, disclosure requirements, codes of conduct, and recusal norms for all employees, including the chairman and whole-time members (WTMs).
Fresh Regulations and Transparency
Sebi Chairman Tuhin Kanta Pandey indicated the regulator intends to voluntarily implement these measures, even prior to formal government notification. This move follows a review of the code of conduct initiated by Pandey upon assuming his position last year, prompted by concerns and allegations involving the previous chairperson.
The revamped framework will introduce a digital system for tracking disclosures of potential conflicts and a formal process for recusal decisions. New investments will be allowed in professionally managed pooled vehicles. Upon taking office, the chairman and WTMs will have options to manage existing investments, including liquidation, freezing, divestment, or sale with prior approval.
Insider Status and Investment Restrictions
The chairman and WTMs will be classified as ‘insiders’ under the new rules. The definition of “family members” has been broadened to include spouses, dependent children, legal wards, and relatives by blood or marriage. Restrictions will apply to direct equity investments by family members, with exceptions for unlisted securities, employee stock ownership plans, and discretionary portfolio management services.
Sebi has also capped exposure to a single intermediary at 25 percent of a member’s portfolio, requiring liquidation or freezing of holdings during their tenure, even in unlisted ventures. Vested stock options must be exercised before joining Sebi.
Other Key Approvals
Beyond the code of conduct, Sebi approved netting of funds for foreign portfolio investors for cash market transactions, slated for implementation by December 31, 2026, to reduce costs and address operational challenges. The regulator also relaxed the criteria for determining whether an intermediary is a “fit and proper person,” removing automatic disqualification upon the initiation of an economic offence probe; disqualification will now require a conviction.
Investment avenues for infrastructure investment trusts (Invits) and real estate investment trusts have been expanded to mitigate concentration risks. Finally, the minimum investment requirement for individual investors in social impact funds has been reduced from ₹2 lakh to ₹1,000, potentially boosting retail participation in the social stock exchange.
Frequently Asked Questions
What areas does the Sebi overhaul cover?
The overhaul covers conflicts of interest, disclosures, code of conduct, and recusal norms for Sebi employees, including the chairman and whole-time members.
Will these changes be implemented immediately?
The recommendations will be referred to the central government, but Sebi Chairman Tuhin Kanta Pandey stated the regulator will voluntarily implement the measures before formal amendments are notified.
What changes are being made regarding investments by Sebi officials and their families?
Restrictions will be imposed on direct equity investments by family members, with exceptions for certain types of securities. The chairman and WTMs will have options to manage existing investments upon taking office.
How might these changes impact investor confidence in the Indian financial markets?
