Explained: How will the changes in F&O delisting framework by SEBI impact investors?

SEBI also lowered the threshold under the counter-offer mechanism from 90% to 75% of public shareholders. (Photo: Bloomberg)

The Securities and Exchange Board of India (SEBI) announced significant changes on Thursday, aimed at simplifying the delisting framework, revising eligibility criteria for the futures & options (F&O) segment, and tightening rules for financial influencers, or “finfluencers.”

Delisting Framework Eased

SEBI has made it easier for promoters to take their companies private. The new delisting framework introduces a fixed price process in addition to the reverse book building (RBB) process. Under this process, promoters can offer to buy back all shares from the public at a minimum of 15% premium to its “fair price.”

The regulator also reduced the threshold under the counter-offer mechanism from 90% to 75% of public shareholders. The delisting process via RBB is successful if the promoter’s or acquirer’s shareholding reaches 90% post-offer.

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SEBI Chairperson Madhabi Puri Buch emphasized that as India’s market matures, companies should have the flexibility to go private if they choose. She referenced the famous “Hotel California” lyric, stating, “This is not Hotel California, where you can check in anytime you like but you can never leave.”

Revised Criteria for F&O Segment

SEBI revised the quantitative parameters for including and removing stocks in the F&O segment to ensure the liquidity of traded stocks. The new criteria include median-quarter sigma order size, market-wide position limit, and average daily delivery value.

Applying these criteria could slightly increase the number of stocks in the F&O segment from the current 182, with about two dozen stocks being added or removed. Buch noted that an expert group was formed to address concerns around F&O trading, particularly the heavy borrowing for derivatives trading and the significant amount of household savings being directed into trading.

Regulations for Finfluencers

SEBI tightened the rules for finfluencers by barring regulated entities and individuals from associating with anyone offering direct or indirect stock recommendations or guaranteed returns.

However, SEBI allowed associations with finfluencers involved in investor education without providing any advice.

Additional Decisions

• Foreign Portfolio Investors (FPIs): University funds and university-related endowments are exempt from additional disclosure requirements. 

• Debt Securities and Non-Convertible Redeemable Preference Shares: SEBI eased the public issue process for these securities.

• Infrastructure Investment Trusts (Invits): The trading lot for privately placed Invits was reduced to ₹25 lakh.

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• Investment Advisors and Research Analysts: A new fee-collection mechanism for registered investment advisors (IAs) and research analysts (RAs) was proposed.

• Performance Evaluation of Market Infrastructure Institutions (MIIs): SEBI proposed independent external evaluations of stock exchanges and other MIIs every three years.

• Cybersecurity: SEBI pushed for data classification and localization by regulated entities to ensure robust security controls for regulatory data.

Alternative Investment Funds (AIFs)

SEBI limited the extension of large-value fund tenures to five years, subject to majority unit holder approval, and allowed AIFs to borrow for up to 30 days to meet temporary drawdown shortfalls.

Technical Glitches and Talent Retention

SEBI removed the automatic financial disincentive on managing directors and chief technology officers of MIIs due to technical glitches, following industry feedback that the disincentive structure was hindering talent attraction and retention.

SEBI’s broad array of regulatory updates aims to enhance market efficiency, protect investor interests, and ensure the robustness of India’s financial market infrastructure.