ARTICLE
15 February 2024

Legalaxy – Monthly Newsletter Series – Vol IX – February, 2024

VA
Vaish Associates Advocates

Contributor

Established in 1971, Vaish Associates, Advocates is one of the best-known full-service law firms in India. Since its inception, it continues to serve a diverse clientele, including domestic and overseas corporations, multinational companies and individuals. Presently, the Firm has its operations in Delhi, Mumbai and Bengaluru.
In the February edition of our monthly newsletter "Legalaxy", our team analyses some of the key developments in securities market, banking and finance, pharmaceuticals, labour, mining, power, and renewable energy.
India Finance and Banking
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In the February edition of our monthly newsletter "Legalaxy", our team analyses some of the key developments in securities market, banking and finance, pharmaceuticals, labour, mining, power, and renewable energy.

SEBI INTRODUCES GUIDELINES FOR AIFs ON HOLDING INVESTMENTS IN DEMATERIALISED FORM AND CUSTODIAN APPOINTMENTS

On January 5, 2024, the Securities and Exchange Board of India ("SEBI") had notified the SEBI (Alternative Investment Funds) (Amendment) Regulations, 2024 ("AIF Amendment Regulations"), which mandated Alternative Investment Funds ("AIFs") to hold their investments in dematerialised form and required sponsors or managers of AIFs to appoint a custodian registered with SEBI for safekeeping of the securities of the AIFs.

SEBI, vide its circular dated January 12, 2024, has now issued guidelines for AIFs with respect to holding their investments in dematerialised form and appointment of custodian.

The said guidelines specify the following:

  1. Holding investments of AIFs in dematerialised form: Any investment made by AIFs on or after October 1, 2024, shall be held in dematerialised form only. Further, investments made by AIFs prior to October 1, 2024, would be exempt from the requirement of being held in dematerialised form except where: (i) the investee company of AIFs have been mandated under applicable law to facilitate dematerialisation of its securities; or (ii) AIFs, on their own, or along with other SEBI registered intermediaries/entities which are mandated to hold their investments in dematerialised form, exercises control over the investee company. Such investments are required to be held in dematerialized form by AIFs on or before January 31, 2025.
  2. Appointment of custodian for AIFs: The AIF Amendment Regulations have extended the mandate of appointment of custodians to schemes of Category I and II AIFs with corpus less than or equal to INR 500 crores (previously only Category III AIFs and Category I and II AIFs with a corpus exceeding INR 500 crores were required to appoint a custodian). The sponsors or managers of AIFs shall be required to appoint a custodian prior to the date of first investment of the scheme. Further, custodians of AIFs that are associates of their manager or sponsor, can only act as a custodian under certain specified conditions set out under the AIF Amendment Regulations. Managers of AIFs are to ensure that these specified conditions are met on or before January 31, 2025.
  3. Reporting of investments of AIFs under custody: The pilot Standard Setting Forum for AIFs (SFA), in consultation with SEBI, shall formulate implementation standards for reporting AIFs' investments data under custody with the custodian. Such standards shall lay down the format and modalities of reporting of data by the AIFs' manager to the custodian and subsequently, by the custodian to SEBI. The standards are to be published on websites of the industry associations forming part of the SFA, i.e., Indian Venture and Alternate Capital Association (IVCA), PE VC CFO Association and Trustee Association of India, within 60 days of issuance of the circular.

To read the AIF Amendment Regulations click here & to read the circular click here

SEBI SUPERSEDES FRAMEWORK FOR SHORT SELLING

SEBI, vide its master circular for Stock Exchanges and Clearing Corporations dated October 16, 2023, had notified broad framework for short selling which has been superseded by circular issued by SEBI dated January 5, 2024, in so far as it related to the framework for short selling (short selling means selling a stock which the seller does not own at the time of trade).

Under the new framework, SEBI has imposed an obligation on the institutional investors to make disclosures of their intent to short sell while placing the order and the retailer investors are required to make such disclosure by the end of the trading hour. These disclosures shall be collated by the brokers and shall be reported to the Stock Exchange scrip-wise. Other regulations of the circular are: (a) short selling shall not be permitted in the Indian securities market and all investors would be required to mandatorily honour their obligation of delivering the securities at the time of settlement; (b) no institutional investor shall be allowed to do day trading, i.e., square-off their transactions intra-day; (c) a scheme for securities lending and borrowing (SLB) shall be put in place to provide the necessary impetus to short sell; and (d) the securities traded in F&O segment shall be eligible for short selling.

To read the master circular click here & to read the circular click here

SEBI'S CONTINUOUS ENDEAVOUR FOR EASE OF DOING INVESTMENT BY INVESTOR – FACILITY OF VOLUNTARY FREEZING/BLOCKING OF TRADING ACCOUNTS BY CLIENTS

SEBI, vide its circular dated January 12, 2024, has, inter alia, stated that the Brokers' Industry Standard Forum shall lay down a framework for trading members to provide the facility of voluntary freezing/blocking the online access of trading account to their clients on account of suspicious activities on or before April 1, 2024, under the aegis of stock exchanges, in consultation with SEBI by considering the guidelines stipulated by SEBI in the aforesaid circular. The stock exchanges shall ensure that the guidelines so issued shall be implemented by trading members with effect from July 1, 2024 and a compliance report to this effect shall be submitted to SEBI by stock exchanges latest by August 31, 2024.

The said framework shall, inter alia, contain necessary guidelines with respect to the following:

  1. detailed policy for voluntary freezing/blocking the online access of the trading account of the client (mode of communication/ request to the Trading Member for voluntary blocking of trading accounts, issue of acknowledgment and the definite time period within which the account shall be frozen/blocked);
  2. action to be taken by the Trading Member pursuant to the receipt of request for freezing/blocking of the trading account;
  3. process for re-enabling the client for trading/transfers; and
  4. intimation to be provided by the trading member to the clients with respect to introduction of the facility to block the trading accounts.

To read the circular click here

To read this Newsletter in full, please click here.

© 2024, Vaish Associates Advocates,
All rights reserved
Advocates, 1st & 11th Floors, Mohan Dev Building 13, Tolstoy Marg New Delhi-110001 (India).

The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.

ARTICLE
15 February 2024

Legalaxy – Monthly Newsletter Series – Vol IX – February, 2024

India Finance and Banking

Contributor

Established in 1971, Vaish Associates, Advocates is one of the best-known full-service law firms in India. Since its inception, it continues to serve a diverse clientele, including domestic and overseas corporations, multinational companies and individuals. Presently, the Firm has its operations in Delhi, Mumbai and Bengaluru.
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