CONTACTS

M.V. Road, Andheri(E), Mumbai- 400059

t + 91 22 28381163-64 f + 91 22 2381164 w

MAHENDRA ZAVERI

Director, Consultancy

MEENAKSHI IYER

Director, Consultancy

INDEX

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Regulatory Update

India Edition

MZaveri@cclcompliance.com MIyer@cclcompliance.com

CCL Consultants (India) Private Limited

314, 3rd Floor, Midas, Sahar Plaza,

ISSUED 15th January 2019

DECEMBER 2018

1.0 RBI REGULATORY UPDATES & DEVELOPMENTS

3

1.1 NOTIFICATIONS 3

1.1.1 1.2

1.2.1

Notification to Scheduled Commercial Banks PRESS RELEASES

Surrendering and Cancellation of Certificate of Registration of NBFCs

3

4

4

2.0 SEBI REGULATORY UPDATES & DEVELOPMENTS

4

2.1 CIRCULARS 4

2.1.1

2.1.2

2.1.3

2.1.4

2.1.5

2.1.6

2.1.7

2.1.8

2.1.9

2.1.10 2.2

2.2.1

2.2.2

2.2.3

2.2.4

2.2.5

Cyber Security & Cyber Resilience Framework for Stock Broker/Depository Participants

Cyber Security & Cyber Resilience Framework for Stock Exchanges, Clearing Corporations & Depositors

Cyber Security Operations Centre for SEBI Registered Intermediaries

Clubbing of Investment Limits of Foreign Portfolio Investors (FPIs)

Review of Risk Management Framework for Equity Derivatives Segment

Early Warning Mechanism to Prevent Diversion of Client Securities

Review of Offer for Sale (OFS) of Shares Through Stock Exchange Mechanism

Creation of Segregate Portfolio in Mutual Scheme

Physical Settlement of Stock Derivatives

Disclosure of Significant Beneficial Ownership by Listed Companies REGULATIONS

SEBI (Mutual Fund) Regulation

SEBI (Issue of Capital and Disclosure Requirements) (ICDR) Regulations

SEBI (Prohibition of Insider Trading) (PIT) Regulation

SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) (FUTP) Regulation

SEBI (Foreign Portfolio Investors) Regulations

4

5

5

5

6

6

7

7

8

8

8

8

8

9

9

10

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DUBAI | LONDON | MUMBAI

CCL Limited, Level 2, Gate Village 7

Dubai International Financial Centre

PO BOX 506733, Dubai, UAE

CCL Consultants (India) Private Limited

314, 3rd Floor, Midas, Sahar Plaza,

M.V. Road, Andheri (E), Mumbai- 400059

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UK | UAE | INDIA

2.3

2.3.1

2.3.2

2.3.3

PRESS RELEASES

Transfer of Securities Only in Demat Form-Deadline Extended till 1st April 2019

Report of the Expert Committee for Listing of Equity Shares of Companies Incorporated in Indian on Foreign Stock Exchanges and vice versa

SEBI Board Meeting Held 12th December 2018

10

10

10

10

3.0 INDIA MARKET UPDATES 12

3.1

3.2

RBI Approves Amalgamation of SBM Bank (Mauritius) Limited, India with SBM (India) Limited.

SEBI Sandbox Policy Plans

12

12

CONTACTS

MAHENDRA ZAVERI

Director, Consultancy MZaveri@cclcompliance.com

MEENAKSHI IYER

Director, Consultancy

MIyer@cclcompliance.com

T + 971 4 323 0800 F + 971 4 323 0588 Web: www.ccl.ae

T + 971 4 323 0800 F + 971 4 323 0588 Web: www.ccl.ae

DUBAI | LONDON | MUMBAI

CCL Limited, Level 2, Gate Village 7

Dubai International Financial Centre

PO BOX 506733, Dubai, UAE

CCL Consultants (India) Private Limited

314, 3rd Floor, Midas, Sahar Plaza,

M.V. Road, Andheri (E), Mumbai- 400059

t + 91 22 28381163-64 f + 91 22 28381164 w www.cclcompliance.in

UK | UAE | INDIA

1.0 RBI REGULATORY UPDATES & DEVELOPMENTS

1.1 Notifications

1.1.1 Notification to Scheduled Commercial Banks

• Guidelines on Loan System for Delivery of Bank Credit Reserve Bank of India has issued guidelines for enhancing credit discipline among large borrowers. The salient provisions are as below:

a. Borrowers having an aggregate fund based working capital limit of ₹1500 million and above from the banking system, would require a minimum level of ‘loan component’ of 40 percent, effective from 1st April 2019. Accordingly, for such borrowers, the outstanding Working Capital Loan (WCL) must be equal to at least 40 percent of the sanctioned fund based working capital limit, including ad hoc limits and Temporary Overdraft Facilities (TODs).

b. Drawings in excess of the minimum ‘loan component’ threshold may be allowed in the form of cash credit facility.

c. Investment by banks in commercial papers issued by the borrower would form part of the loan component, provided the investment is sanctioned as part of the working capital limit.

d. All lenders in the consortium would be individually and jointly responsible to make sure that, at the aggregate level, the ‘loan component’ meets the above mentioned requirements. Under Multiple Banking Arrangements (MBAs), each bank would need to ensure adherence to the guidelines at the individual bank level.

e. The amount and tenor of the loan component may be fixed by banks in consultation with the borrowers, subject to the tenor being not less than seven days.

f. Banks/consortia/syndicates will have the discretion to stipulate repayment of the WCLs in instalments or by way of a "bullet" repayment, subject to the Income Recognition and Asset Classification (IRAC) norms.

g. With effect from 1st April 2019, the undrawn portion of cash credit/ overdraft limits sanctioned to the aforesaid large borrowers would attract a credit conversion factor of 20 percent.

h. The guidelines will be effective from 1st April 2019 covering both existing as well as new relationships. The 40 percent loan component will be revised to 60 percent, with effect from 1st July 2019. https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11428

• Section 24 and Section 56 of the Banking Regulation Act, 1949 – Maintenance of Statutory Liquidity Ratio (SLR)

Reserve Bank has decided to reduce the Statutory Liquidity Ratio (SLR) requirement of banks by 25 basis points every calendar quarter from 19.50 per cent of their Net Demand and Time Liabilities (NDTL) to

a. 19.25 per cent from 5th January 2019 b. 19.00 per cent from 13th April 2019 c. 18.75 per cent from 6th July 2019 d. 18.50 per cent from 12th October 2019 e. 18.25 per cent from 4th January 2020 f. 18.00 per cent from 11th April 2020

https://rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=11427

• Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio (LCR), FALLCR against Credit Disbursed to NBFCs and HFCs

RBI’s Circular dated 19th October 2018 states that banks were permitted to reckon government securities as Level 1 High Quality Liquid Assets (HQLA) under Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR) within the mandatory SLR requirement, up to 0.5 per cent of the bank’s NDTL and in respect of their incremental lending to Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs) after 19th October 2018. This facility was available up to 31st December 2018. Further, the single borrower limit for NBFCs (not financing infrastructure) was increased from 10 per cent to 15 per cent of capital funds till 31st December 2018.

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DUBAI | LONDON | MUMBAI

CCL Limited, Level 2, Gate Village 7

Dubai International Financial Centre

PO BOX 506733, Dubai, UAE

CCL Consultants (India) Private Limited

314, 3rd Floor, Midas, Sahar Plaza,

M.V. Road, Andheri (E), Mumbai- 400059

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UK | UAE | INDIA

In order to further facilitate banks to lend to NBFCs and HFCs, it has now been decided to extend the aforesaid facilities up to 31st March 2019. With effect from 1st April 2019, banks’ exposures to a single NBFC would be restricted to 15 percent of their eligible capital base (Tier-1 capital). https://rbi.org.in/Scripts/NotificationUser.aspx?Id=11442&Mode=0

• Filing of Security Interest Relating to Immovable (Other Than Equitable Mortgage), Movable and Intangible Assets in CERSAI

Reserve Bank of India had advised banks and financial institutions (FIs) to register with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI for transactions relating to both securitisation and reconstruction of financial assets and mortgage by deposit of title deeds). The Government of India subsequently issued a Gazette Notification dated 22nd January 2016 for filing of the following types of security interest on the CERSAI portal:

a. Particulars of creation, modification or satisfaction of security interest in immovable property by mortgage other than mortgage by deposit of title deeds.

b. Particulars of creation, modification or satisfaction of security interest in hypothecation of plant and machinery, stocks, debts including book debts or receivables, whether existing or future.

c. Particulars of creation, modification or satisfaction of security interest in intangible assets, being know how, patent, copyright, trademark, licence, franchise or any other business or commercial right of similar nature.

d. Particulars of creation, modification or satisfaction of security interest in any ‘under construction’ residential or commercial property (other than mortgage)

CERSAI has started the process of registration of data. Banks and FIs have now been advised to complete the filing of charges pertaining to subsisting transactions by 31st March 2019. Banks and FIs have also been advised to file the current charges relating to all transactions with CERSAI on an ongoing basis. https://rbi.org.in/Scripts/NotificationUser.aspx?Id=11439&Mode=0

1.2 Press Releases

1.2.1 Surrendering and Cancellation of Certificate of Registration of NBFCs.

During December 2018, 5 NBFCs surrendered their Certificates of Registration to RBI who, consequently, cancelled them. In addition, RBI cancelled the registration certificates of 126 NBFCs. All of these companies cannot now undertake the business of a Non-Banking Financial Institution, as laid down under clause (a) of Section 45-I of the Reserve Bank of India Act, 1934 2.0 SEBI REGULATORY UPDATES & DEVELOPMENTS

2.1 Circulars

2.1.1 Cyber Security & Cyber Resilience Framework for Stock Broker/Depository Participants SEBI has prescribed a framework on cyber security and cyber resilience, which is to be complied with by Stock Brokers and Depository Participants registered with SEBI. The guidelines will be effective from 1st April 2019. The key stipulations are as below:

• Brokers and depository participants would be required to formulate a comprehensive cybersecurity and cyber resilience policy document encompassing the framework.

• The policy document would need to be approved by the Board of Directors or the proprietor of the broker and depository participants. In case of deviations from the suggested framework, reasons for such deviations, technical or otherwise, should be provided in the policy document. The policy would need to be reviewed at least annually.

• Stock Brokers and depository participants would be required to designate a senior official or management personnel as a “Designated Officer”. The Designated Officer’s function would be to assess, identify, and reduce security and cyber security risks, respond to incidents, establish appropriate standards and controls,

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DUBAI | LONDON | MUMBAI

CCL Limited, Level 2, Gate Village 7

Dubai International Financial Centre

PO BOX 506733, Dubai, UAE

CCL Consultants (India) Private Limited

314, 3rd Floor, Midas, Sahar Plaza,

M.V. Road, Andheri (E), Mumbai- 400059

t + 91 22 28381163-64 f + 91 22 28381164 w www.cclcompliance.in

UK | UAE | INDIA

and direct the establishment and implementation of processes and procedures as per the Cyber Security Policy.

• The Designated Officer and the Technology Committee of the stock brokers and depository participants should periodically review instances of cyber-attacks, if any, domestically and globally, and take steps to strengthen cyber security and cyber resilience framework.

• Access to IT systems, applications, database and networks should be granted on a need-to-use basis and based on the principle of least privilege. Such access should be for the period when the access is required and should be authorised using strong authentication mechanisms.

2.1.2 Cyber Security & Cyber Resilience Framework of Stock Exchanges, Clearing Corporations & Depositors In July 2015, SEBI gave a detailed regulatory framework on cyber security and cyber resilience for Market Infrastructure Institutions (MIIs), i.e., Stock Exchanges, Clearing Corporations and Depositories. It has now been decided that MIIs shall have a Cyber Security Operation Center (C-SOC) that would be a 24x7x365 set-up, manned by dedicated security analysts to identify, respond, recover and protect the institution from cyber security incidents. (Please see Circular dated 7th December 2018). The key highlights of the circular are as below.

• The C-SOC would need to function as per the framework prescribed in SEBI’s circular dated 6th July 2015.

• The MII would need to ensure that the governance and reporting structure of the C-SOC is commensurate with the risk and threat landscape of the MII.

• The C-SOC shall be headed by the Chief Information Security Officer (CISO) of the MII. The CISO would be designated as a Key Managerial Personnel (KMP) and relevant provisions relating to KMPs in the SEBI Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 relating to KMPs, would apply to the CISO.

• Each MII has been advised to formulate a Cyber Crisis Management Plan (CCMP) based on the nature of its operations and threats faced.

• The C-SOC would need to have well-defined and documented processes for monitoring its systems and networks, analysis of cyber security threats and potential intrusions or security incidents, usage of appropriate technology tools, classification of threats and attacks, escalation and reporting of incidents and response to threats and breaches.

2.1.3 Cyber Security Operations Centre for SEBI Registered Intermediary As compliance with the cyber security guidelines may be onerous for smaller intermediaries, it has been stipulated that these intermediaries may utilize the services of a Market SOC, which is proposed to be set up by MIIs with the objective of providing cyber security solution to such intermediaries. (See SEBI Circular dated 14th December 2018)

• The intermediaries’ membership in the Market SOC is not mandatory.

• The Market SOC shall be set up as a separate entity and MIIs shall have at least 51% stake in the new entity.

• The Market SOC should be in accordance to the SEBI circular dated 3rd December 2018 referred to in Para 2.1.2 above.

• The Market SOC would have to ensure that the intermediaries participating in their SOC should adhere to the minimum IT guidelines and security protocols all the time.

• The MII will be required to carry out an audit of their Market SOC activity annually and submit a report to SEBI.

• The Market SOC will need to issue an audit report to the participating intermediary. 2.1.4 Clubbing of Investment Limits of Foreign Portfolio Investors In terms of the SEBI Regulations on FPIs, if two or more FPIs have the same set of ultimate beneficial owners, such

FPIs are treated as part of the same investor group and the investment limits of all such entities are clubbed for

deriving the investment limit as applicable to a single FPI.

SEBI has now introduced certain provisions easing the existing norms, as below.

(See Circular dated 13th December 2018):

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DUBAI | LONDON | MUMBAI

CCL Limited, Level 2, Gate Village 7

Dubai International Financial Centre

PO BOX 506733, Dubai, UAE

CCL Consultants (India) Private Limited

314, 3rd Floor, Midas, Sahar Plaza,

M.V. Road, Andheri (E), Mumbai- 400059

t + 91 22 28381163-64 f + 91 22 28381164 w www.cclcompliance.in

UK | UAE | INDIA

• Clubbing of investment limit for FPIs will be on the basis of common ownership of more than 50% or based on common control.

• Further, clubbing of investment limit of FPIs having common control shall not be done in case of (a) FPIs, which are appropriately regulated public retail funds or (b) FPIs, which are public retail funds with majority ownership by appropriately regulated public retail funds on look through basis or (c) FPIs, which are public retail funds, whose Investment Managers (IMs) are appropriately regulated.

• In case two or more FPIs including foreign Governments and their related entities are having direct or indirect common ownership of more than 50% or control, all such FPIs will be treated as forming part of an investor group and the investment limits of all such entities shall be clubbed at the investment limit, as applicable to a single foreign portfolio investor.

• The investment by foreign Government agencies would be clubbed with the investment by the foreign Government and its related entities for the purpose of calculation of 10% limit for FPI investments in a single company, if they form part of an investor group.

• The investment by a foreign Government and its related entities from provinces or states of countries with federal structure shall not be clubbed if the said foreign entities have different ownership and control.

• In the event of any breach of the investment limit mentioned above, the FPIs would have the following two options: a. The FPI would have to divest its holding within five trading days from the date of settlement of the

trades to bring its shareholding below 10% of the paid up capital of the company. b. The said investments shall be treated as Foreign Direct Investment from the date of breach.

2.1.5 Review of Risk Management Framework for Equity Derivative Segment SEBI has introduced a more robust risk management framework for margins in respect of equity derivatives (See

Circular dated 17th December 2018).

Currently, stock exchanges and clearing corporations offer a choice to the trading members to opt for payment of

Mark to Market Settlements (MTM) either before the start of trading (T+0) or on the next day (T+1) with scaled up

margins to cover the potential for losses over the time elapsed in the collection of MTM. The following measures have

been introduced:

• In order to make the risk management framework more robust, the payment of MTM shall now be mandatory and made by all the members on T+0 basis i.e. before start of trading on the next day.

• The Margin Period of Risk (MPOR) has been increased to two days from one day. Stock exchanges and clearing corporations have been advised to estimate the appropriate MPOR, subject to a minimum of two days, for each equity derivative product based on liquidity and scale up the initial margins and exposure margins accordingly.

• For initial margins, the revised MPOR would be given effect by way of scaling up the 'price scan range' used for computing the worst scenario loss.

2.1.6 Early Warning Mechanism to Prevent Diversion of Client Securities SEBI has issued guidelines on Early Warning Mechanism and sharing of information between Stock Exchanges,

Depositories and Clearing Corporations to detect the diversion of client’s securities by the stock broker at an early

stage so as to take appropriate preventive measures (See SEBI Circular dated 17th December 2018). The threshold for

such early warning signals would be decided by the Stock Exchanges, Depositories and Clearing Corporations with

mutual consultation.

• Early warning signals, for prevention of diversion of clients’ securities, may include

a. Deterioration in financial health of the stock broker/depository participant based on parameters such as

significant reduction in net worth, significant losses, repeated instances of pay-in shortages, significant

mark-to-market losses etc.

b. Significant trading exposure or amount of loans or advances given to and investments made in related

parties or group.

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DUBAI | LONDON | MUMBAI

CCL Limited, Level 2, Gate Village 7

Dubai International Financial Centre

PO BOX 506733, Dubai, UAE

CCL Consultants (India) Private Limited

314, 3rd Floor, Midas, Sahar Plaza,

M.V. Road, Andheri (E), Mumbai- 400059

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UK | UAE | INDIA

c. Sudden activation of significant number of dormant client’s accounts and/or significant activity in the

dormant accounts.

d. Resignation of Statutory Auditors or Directors.

• Early warning signals for securities pledge transactions may include

a. Alerts for stock brokers maintaining multiple proprietary demat accounts and opening any new demat

account in the name of stock broker for client purpose.

b. Movement of shares to or from a large number of clients’ demat accounts or large value shares to stock

broker proprietary accounts and vice versa.

c. Transfer of large value of shares through off-market transfers other than for settlement purposes.

d. Invocation of pledge of securities by lenders against stock broker or their clients.

e. Significant depletion of client’s shares in the stock broker client account maintained by the stock broker.

• Increase in number of investor complaints against a stock broker or depository participant alleging un-authorised trading or unauthorised delivery instructions being processed and non-receipt of funds and securities and non-resolution of the same would also serve as an early warning signal.

• Attention would need to be paid to alerts generated from the monthly or weekly submissions made by stock broker under the Risk Based Supervision (RBS) or Enhanced Supervision to the stock exchanges

• Stock exchanges and depositories have been advised to frame an internal policy regarding non-cooperation by stock brokers and depository participants during inspections.

• Alerts triggered at one stock exchange, clearing corporation or depository through early warning mechanism would need to be immediately shared with other stock exchanges or depositories with respect to the stock broker or depository participant.

Based on the analysis of the early warning data, if it is established that a stock broker’s financial health has deteriorated and/or he has made unauthorised transfer of funds or securities of the client, stock exchanges and depositories would need to jointly take preventative action. 2.1.7 Review of Offer for Sale (OFS) of Shares through Stock Exchange Mechanism Comprehensive guidelines on Offer for Sale of Shares through the stock exchange mechanism were issued through SEBI’s Circular dated 18th July 2012. These guidelines have been modified from time to time based on the representations and suggestions received from various stakeholders. The OFS framework has now been further modified as follows (See Circular dated 28th December 2018):

• The OFS mechanism would be available to companies with a market capitalisation of INR 1000 crores and above, with the threshold of market capitalisation computed as the average daily market capitalisation for the six- month period prior to the month in which the OFS opens.

• If the seller fails to get sufficient demand from non-retail investors at or above the floor price on T day, then the seller may choose to cancel the offer, post bidding, in full (both retail and non-retail) on T day and not proceed with offer to retail investors on T+1 day.

2.1.8 Creation of Segregate Portfolio in Mutual Fund Scheme SEBI has permitted Mutual Funds to create a segregated portfolio of debt and money market instruments (See Circular dated 28th December 2018). Creation of Segregated Portfolio is a mechanism to separate distressed, illiquid assets from other more liquid assets in a mutual fund portfolio to deal with a situation arising due to a credit event.

• An Asset Management Company (AMC) may create a segregated portfolio in a mutual fund scheme in case of a credit event at issuer level i.e. downgrade in credit rating by a SEBI registered Credit Rating Agency (CRA), as below. a. Downgrade of a debt or money market instrument to ‘below investment grade’ b. Subsequent downgrades of the said instruments from ‘below investment grade’ c. Similar such downgrades of a loan rating.

• In case of difference in rating by multiple CRAs, the most conservative rating shall be considered.

• Creation of a segregated portfolio shall be based on issuer level credit events as detailed in the circular and implemented at the ISIN level.

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DUBAI | LONDON | MUMBAI

CCL Limited, Level 2, Gate Village 7

Dubai International Financial Centre

PO BOX 506733, Dubai, UAE

CCL Consultants (India) Private Limited

314, 3rd Floor, Midas, Sahar Plaza,

M.V. Road, Andheri (E), Mumbai- 400059

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UK | UAE | INDIA

• Creation of segregated portfolio would be optional and at the discretion of the AMC. It should be created only if the Scheme Information Document (SID) of the scheme has provisions for a segregated portfolio with adequate disclosures.

• AMCs would be required to have a detailed policy on creation of segregated portfolio and the same would need to be approved by the trustees.

• The trustees would be required to monitor the compliance of the provisions stipulated by SEBI with regard to such segregation. Compliance with SEBI instructions in respect of every segregated portfolio created would need to be disclosed in the half-yearly trustee reports filed with SEBI.

• In order to avoid mis-use of segregated portfolio, trustees would need to have a mechanism in place to assess the performance incentives of Fund Managers, Chief Investment Officers (CIOs), etc. involved in the investment process of securities under the segregated portfolio. The existing mechanism for performance incentives of the AMC and inclusion of suitable claw back provisions with respect to incentives already paid would need to be built in.

2.1.9 Physical Settlement of Stock Derivatives It has been decided that physical settlement would be made mandatory for all stock derivatives (see Circular dated 31st December 2018) Stock derivatives, which are presently being cash settled, shall move to physical settlement in a phased manner, as outlined in the circular. 2.1.10 Disclosure of Significant Beneficial Ownership by Listed Companies

All listed companies will be required to make disclosures about details relating to significant beneficial owners (SBO) on a quarterly basis, along with their shareholding pattern, in a format prescribed by SEBI. (See Circular dated 7th December 2018). This requirement will come into effect from the quarter ended 31st March 2019. Pursuant to the amendment, listed entities will be required to disclose the name, permanent account number and nationality of the SBO. 2.2 Regulations

2.2.1 SEBI (Mutual Fund) Regulation

The SEBI Mutual Fund Regulations have been amended through a notification dated 13th December 2018. In terms of the amendment, the total expense ratio (TER) of the scheme excluding issue or redemption expenses, which include the investment management and advisory fee would be subject to the following limits:

• In case of investments in liquid schemes, index fund schemes and exchange traded funds, the TER of the scheme, including the weighted average of the TER, shall not exceed 1 per cent of the daily net assets of the scheme.

• In case of investment of a minimum of sixty-five per cent of assets under management in equity oriented schemes as per the scheme information document, the TER of the scheme, including the weighted average of the TER, shall not exceed 2.25 per cent of the daily net assets of the scheme.

• In case of investment in schemes other than the above, the TER, including the weighted average of the TER, shall not exceed 2 per cent of the daily net assets of the scheme.

• In case of close ended and interval schemes, (i) the TER of an equity oriented scheme shall not exceed 1.25 per cent of the daily net assets of the scheme, (ii) the TER of a close ended and interval scheme other than (i) above, shall not exceed 1 per cent of the daily net assets of the scheme.

2.2.2 SEBI (Issue of Capital and Disclosure Requirements) (ICDR) Regulation

The SEBI (ICDR) Regulations have been amended through a notification issued on 31st December 2018. The following amendments have been introduced:

• In an issue made other than through the book building process, the allocation in the net offer category shall be made as follows: minimum fifty percent to retail individual investors and the remaining to individual

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DUBAI | LONDON | MUMBAI

CCL Limited, Level 2, Gate Village 7

Dubai International Financial Centre

PO BOX 506733, Dubai, UAE

CCL Consultants (India) Private Limited

314, 3rd Floor, Midas, Sahar Plaza,

M.V. Road, Andheri (E), Mumbai- 400059

t + 91 22 28381163-64 f + 91 22 28381164 w www.cclcompliance.in

UK | UAE | INDIA

applicants, other than retail individual investors, and other investors including corporate bodies or institutions, irrespective of the number of specified securities applied for.

• The unsubscribed portion in either of the categories may be allocated to applicants in the other category.

• If the retail individual investor category is entitled to more than fifty percent of the issue size on a proportionate basis, the retail individual investors shall be allocated that higher percentage.

2.2.3 SEBI (Prohibition of Insider Trading) (PIT) Regulations The SEBI (PIT) Regulations have been amended through a notification dated 31st December 2018. The key changes introduced are as below and will be effective from 1st April 2019:

• The extant PIT Regulations prohibit communication of Unpublished Price Sensitive Information (UPSI) other than in furtherance of a legitimate purpose, performance of duties or discharge of legal obligations. It has now been advised that the onus of deciding what would constitute legitimate purpose would be on the Board of Directors of listed companies.

• In respect of disclosure of UPSI during due diligence exercises, the Board of Directors of a listed company would need to approve such disclosure after assessing whether the sharing of UPSI is in the best interests of the company.

• The Boards of listed companies are required to ensure that a structured digital database is maintained with details of persons who receive UPSI pursuant to a due diligence exercise.

• Two separate codes have been prescribed for listed companied and intermediaries.

• Categories of persons who would qualify as ‘designated persons’ have been defined.

• Disclosures relating to shareholding have been limited to designated employees only.

• Designated persons are required to provide details of persons with whom they share a ‘material financial relationship’, i.e. where one person is a recipient of any kind of payment (other than arms’ length transactions) in the preceding 12 months, equivalent to at least 25% of the payer’s annual income.

• Policies would need to be put in place by listed entities to institute an inquiry in the event of any leak of UPSI. Listed entities would also be required to put in place a whistle-blower policy.

• The Board of Directors and the Audit Committee are required to ensure compliance and verify the systems and controls implemented by the entity.

. 2.2.4 SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) (FUTP) Regulations SEBI has introduced amendments to the FUTP Regulations through a notification dated 31st December 2018. and come into force on 1st February 2019. Key highlights are as below

• The scope of ‘dealing in securities’ has been expanded to include such acts that may be knowingly designed to influence the decision of investors in securities.

• The following acts have been included as unfair and fraudulent trade practices: a. Inducing any person to subscribe to an issue of securities for fraudulently securing the minimum

subscription to such issue of securities, by advancing or agreeing to advance any money to any other person or through any other means.

b. Inducing any person for dealing in any securities for artificially inflating, depressing, maintaining or causing fluctuation in the price of securities through any means including by paying, offering or agreeing to pay or offer any money or money’s worth, directly or indirectly, to any person.

c. Influencing or manipulating the reference price or bench mark price of any securities. d. Selling, dealing or pledging of stolen, counterfeit or fraudulently issued securities, unless the concerned

person was a holder in due course or such securities were previously traded through a bona fide transaction.

e. Disseminating information or advice through any media, whether physical or digital, which the disseminator knows to be false or misleading and which is designed or likely to influence the decision of investors dealing in securities.

T + 971 4 323 0800 F + 971 4 323 0588 Web: www.ccl.ae

T + 971 4 323 0800 F + 971 4 323 0588 Web: www.ccl.ae

DUBAI | LONDON | MUMBAI

CCL Limited, Level 2, Gate Village 7

Dubai International Financial Centre

PO BOX 506733, Dubai, UAE

CCL Consultants (India) Private Limited

314, 3rd Floor, Midas, Sahar Plaza,

M.V. Road, Andheri (E), Mumbai- 400059

t + 91 22 28381163-64 f + 91 22 28381164 w www.cclcompliance.in

UK | UAE | INDIA

f. A market participant entering into transactions on behalf of a client without the knowledge of or instructions from the client or misusing or diverting the funds or securities of the client held in fiduciary capacity.

g. Mis-selling of securities or services in the securities market 2.2.5 SEBI (Foreign Portfolio Investors) Regulations

The following amendments have been introduced in the SEBI (FPI) Regulations, through a notification dated 31st December 2018.

• The term “control” has been defined to include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of shareholding or management rights or shareholders’ agreements or voting agreements or in any other manner.

• “Investment Manager” has been defined as an entity performing the role of investment management, investment advisory or any other equivalent role, including trustees.

• Non-resident Indians (NRIs), overseas citizens of India (OCI) and resident Indians (RI) will be allowed to be constituents of an FPI if the single and aggregate NRI/OCI/RI holdings in assets under management of an FPI are below 25% and 50%, respectively. NRIs, OCIs and RIs are not permitted to be in control of an FPI. This provision would need to be complied with by existing FPIs by 31st December 2020. New FPI applicants would need to comply with the same from their date of registration with SEBI.

• The FPI and its underlying investors contributing twenty-five percent or more in the corpus or identified on the basis of control should not be persons mentioned in the Sanctions List notified by the UN and shall not be from a jurisdiction having AML or CFT deficiencies or a jurisdiction that has not made sufficient progress in addressing such deficiencies. Existing FPIs would need to ensure compliance with this stipulation by 31st March 2019.

2.3 Press Releases

2.3.1 Transfer of Securities Only in Demat Form- Deadline Extended till 1st April 2019

In March 2018, SEBI decreed that, except in case of transmission or transposition of securities, requests for effecting transfer of securities shall not be processed unless the securities are held in the dematerialised form with a depository. This measure was to come into effect from 5th December 2018. The deadline has been extended to 1st April 2019. 2.3.2 Report of the Expert Committee for Listing of Equity Shares of Companies Incorporated in Indian on Foreign Stock Exchanges and vice versa SEBI had constituted an ‘Expert Committee for listing of equity shares of companies incorporated in India on foreign

stock exchanges and of companies incorporated outside India on Indian stock exchanges’ on 12th June 2018. The

committee submitted its report to SEBI on 4th December 2018. A copy of the report can be accessed at the following

link:

https://www.sebi.gov.in/reports/reports/dec-2018/report-of-the-expert-committee-for-listing-of-equity-shares-of-companies-incorporated-in-india-on-foreign-stock-exchanges-and-of-companies-incorporated-outside-india-on-indian-stock-exchange_41219.html

2.3.3 SEBI Board Meeting Held on 12th December 2018

Key decisions taken by the SEBI Board at the meeting held on 12th December 2018 are as below:

• Review of Framework for Institutional Trading Platform The SEBI Board has, in principle, approved the proposals for amendments to the regulations pertaining to Institutional Trading Platform (“ITP”) in the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR Regulations”). Approved key proposals include: a. The Platform would be renamed as Innovators Growth Platform (“IGP”).

T + 971 4 323 0800 F + 971 4 323 0588 Web: www.ccl.ae

T + 971 4 323 0800 F + 971 4 323 0588 Web: www.ccl.ae

DUBAI | LONDON | MUMBAI

CCL Limited, Level 2, Gate Village 7

Dubai International Financial Centre

PO BOX 506733, Dubai, UAE

CCL Consultants (India) Private Limited

314, 3rd Floor, Midas, Sahar Plaza,

M.V. Road, Andheri (E), Mumbai- 400059

t + 91 22 28381163-64 f + 91 22 28381164 w www.cclcompliance.in

UK | UAE | INDIA

b. In order to be eligible for listing on the IGP, the issuer shall be a company which is intensive in the use of technology, information technology, intellectual property, data analytics, bio-technology or nano-technology to provide products, services or business platforms with substantial value.

c. 25% of the pre-issue capital, of the Issuer Company for at least a period of 2 years, should have been held by

Qualified Institutional Buyers

Family trust with net-worth of more than five hundred crore rupees

Category III Foreign Portfolio Investor

A pooled investment fund with minimum assets under management of USD 150 million and registered with a financial sector regulator in the jurisdictions where it is resident. The fund should be a resident of a country whose securities market regulator is a signatory to IOSCO’s MMOU (Appendix A Signatories) or a signatory to bilateral MOU with SEBI and not a resident in a country identified in the public statement of Financial Action Task Force as deficient in AML and combating financing of terrorism.

Accredited Investors (AIs) which would include any individual with total gross income of INR 50 lakhs annually and who has minimum liquid net worth of INR 5 crores or anybody corporate with net worth of INR 25 crores

d. Not more than 10% of the pre-issue capital may be held by Accredited Investors. e. The existing requirement of holding not more than 25% of the post issue capital by any person

individually or collectively with persons acting in concert would be done away with. The minimum application size and minimum trading lot would be INR 2 Lakhs and in multiples of INR 2 Lakhs thereafter.

f. There would not be any requirement of minimum reservation of allocation to specific category of investors. Minimum number of allottees to be 50.

g. Minimum net offer to public should be in compliance with Minimum Public Shareholding (MPS) norms and minimum offer size to be INR 10 crores.

h. IGP to be designated as a platform for start-ups with an option to trade under regular category after completion of one year of listing subject to compliance with exchange requirements.

• Amendment to SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 Under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, in case of any increase or decrease in estimated issue size by more than twenty percent, fresh filing of the offer document with SEBI is required. At present, such requirement is for both fresh issues and offer for sale. In case of an Offer for Sale (excluding fresh issue component), it has been decided that fresh filing of offer document with SEBI will be required, when there is a change in either the number of shares offered for sale or the estimated issue size, by more than fifty per cent.

• Amendment in Regulation 29(4) of Takeover Regulations, 2011 Under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Regulations”), shares taken by way of encumbrance are treated as an acquisition and shares given upon release of encumbrance are treated as a disposal. Such acquisition and disposal are required to be disclosed. At present, such disclosure requirement is not applicable to a scheduled commercial bank or public financial institution as a pledgee in connection with a pledge of shares for securing indebtedness in the ordinary course of business. The SEBI Board has, in principle, approved that the aforesaid exception to the disclosure requirement will also apply to i) deposit taking Housing Finance Companies (HFCs) or HFCs with asset size of INR .500 cr or more, registered with National Housing Bank and ii) systemically important Non-banking Financial Companies (NBFCs).

T + 971 4 323 0800 F + 971 4 323 0588 Web: www.ccl.ae

T + 971 4 323 0800 F + 971 4 323 0588 Web: www.ccl.ae

DUBAI | LONDON | MUMBAI

CCL Limited, Level 2, Gate Village 7

Dubai International Financial Centre

PO BOX 506733, Dubai, UAE

CCL Consultants (India) Private Limited

314, 3rd Floor, Midas, Sahar Plaza,

M.V. Road, Andheri (E), Mumbai- 400059

t + 91 22 28381163-64 f + 91 22 28381164 w www.cclcompliance.in

UK | UAE | INDIA

3.0 INDIA MARKET UPDATES

3.1 RBI Approves Amalgamation of SBM Bank (Mauritius) Limited, India with SBM (India) Limited

The Reserve Bank of India has sanctioned the Scheme of Amalgamation of the entire undertaking of SBM Bank (Mauritius) Limited, India with SBM Bank (India) Limited which has been granted licence by the Reserve Bank to carry on the business of banking in India through Wholly Owned Subsidiary (WOS) Mode under section 22(1) of the Banking Regulation Act, 1949.

This came into effect from 1st December 2018. 3.2 SEBI Sandbox Policy Plans

SEBI is reportedly planning a sandbox policy to support technology developments in financial market and will allow companies to test products in a closed environment, a particular geography or among a set of users, before they are allowed roll out commercially after meeting all regulations.

SEBI is examining whether any change in law is required for adopting such a policy.

T + 971 4 323 0800 F + 971 4 323 0588 Web: www.ccl.ae

T + 971 4 323 0800 F + 971 4 323 0588 Web: www.ccl.ae

DUBAI | LONDON | MUMBAI

CCL Limited, Level 2, Gate Village 7

Dubai International Financial Centre

PO BOX 506733, Dubai, UAE

CCL Consultants (India) Private Limited

314, 3rd Floor, Midas, Sahar Plaza,

M.V. Road, Andheri (E), Mumbai- 400059

t + 91 22 28381163-64 f + 91 22 28381164 w www.cclcompliance.in

UK | UAE | INDIA

ABOUT CCL

Established in the UK in 1988, 2006 in the UAE and 2012 in India, CCL’s Mumbai operation provides specialist

compliance services to organisations that are regulated by RBI and SEBI.

Consultancy Services & Support

• Documentation

o RBI Regulated Firms

o SEBI Regulated Firms

• Authorisation with RBI and SEBI

• Compliance Advisory

o Assurance Reviews

o Compliance Support Services

o AML, CFT & ABC

• Regulatory Technology – CCL C.O.R.E

If you wish to discuss how CCL can assist you with any of the issues raised in this Regulatory Update, please contact

one of the principals using the details below:

Tel: +91 22 28381163-64

Email: India@cclcompliance.com

Web: www.cclcompliance.in

Or write to us at:

CCL Consultants (India) Private Limited

314, 3rd Floor, Midas, Sahar Plaza,

M.V. Road, Andheri (E),

Mumbai- 400059

This Regulatory Update provides information about the consultative documents and publications issued by the RBI

and SEBI which are still current, proposed changes to the Rules and Guidance set out by RBI and SEBI, actual

changes to Rules and Guidance that have occurred in the months leading up to the update, and other matters of

relevance to RBI & SEBI-regulated firms. This Regulatory Update is intended to provide general summarised

guidance only, and no action should be taken in reliance on it without specific reference to the particular RBI and

SEBI Notifications referred to.