2 days ago
Mint Explainer: What did Sebi decide at its 210th board meeting?
In his second board meeting as chairperson of the Securities and Exchange Board of India (Sebi), Tuhin Kanta Pandey approved a sweeping set of regulatory changes aimed at reducing friction across capital markets.
With reforms for startups and PSU delisting norms, tweaks to the structures of alternative investment funds (AIFs) and angel funds, and easier procedures for intermediaries, the regulator moved decisively to bolster its 'ease of doing business' agenda.
Mint breaks down the key decisions from Sebi's 210th board meeting, and what they mean for investors, startups and the broader financial ecosystem.
What did Sebi decide for promoters of startups?
Sebi permitted founders designated as promoters to retain employee stock options (Esops), provided these were granted at least a year before the company filed its draft red herring prospectus (DRHP). Earlier, such holdings had to be liquidated before the listing, creating regulatory headaches for startup founders, already under pressure to become unicorns and reward their early investors with rich exits.
Many are now in wait-and-watch mode. 'The move by Sebi is intended to ease the pain of many promoters who started the business, going from employee to entrepreneur," said Archana Balasubramanian, partner at Agama Law Associates.
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Shubha Yadav, partner at RS Law Chambers, termed the change 'clear and targeted", adding that the one-year cooling-off period 'covers only those share-based benefits including Esops granted one year prior to the filing of the DRHP, which should not raise any legal or compliance challenge during IPO preparation".
Flagging potential grey areas, Ketan Mukhija, senior partner at Burgeon Law said, 'Determining the start of the cooling-off period and ensuring there are no indirect grants will require careful documentation."
How is Sebi easing PSU delistings?
Public sector undertakings (PSU) in which the government and other PSUs hold an at least 90% stake can now delist without the two-thirds public shareholder approval that was previously mandated. The new fixed-price route requires a 15% premium above the calculated floor price, based on historical data and independent valuation.
Prashant Mishra, founder & CEO of Agnam Advisors, said government-owned companies now have a clearer path to exit the stock market through a straightforward pricing system, making it easier for big institutional investors to understand what is happening.
Legal experts said one critical legal question remains: how will minority shareholders' rights be safeguarded? Abhishek Dadoo, partner at Khaitan & Co, said this framework enables the delisting of PSUs that would otherwise struggle to exit, but comes at the cost of diluting minority protections. 'The delisting price is linked to an independent valuation, not the historic market price—which could be higher. The removal of the public vote effectively un-democratises the process." he added.
Can AIF investors now co-invest more easily?
Category I and II AIFs can now offer co-investment schemes (CIVs) within their structure, giving accredited investors a chance to invest alongside the AIF in unlisted companies.
'The approval of the co-investment vehicle is a breakthrough that will significantly expand private capital participation in India," said Gopal Srinivasan, chairman and managing director, TVS Capital Funds. 'Typically, in global practice, 15-20% of a fund's corpus comes through such co-investments, and this is now within reach", he said.
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However, Nandini Pathak, partner at Bombay Law Chambers, emphasised caution, saying the eligibility of co-investors would hinge on their accreditation status. 'Restrictions may continue around exit timing and terms. These advisory rights are being considered for listed co-investments," she said. Pathak suggested fund managers adopt appropriate internal controls and best execution practices, and provide adequate disclosures to the main AIF investors.
How is Sebi changing investment norms for angel funds?
Only accredited investors (AIs) can now invest in angel funds. AIs undergo independent verification to ensure compliance and protect investors. Earlier investments by non-AIs are grandfathered in, with a one-year transition period. Limits for investing in startups have been widened from ₹10 lakh to ₹25 crore), the 25% concentration cap has been removed, and more than 200 accredited investors can invest together. Managers must retain 'skin in the game" of at least 0.5% or ₹50,000 per deal.
Experts said AIFs have long been attracting high-net-worth individuals (HNIs) and relatively sophisticated investors, which gives Sebi more leeway to relax norms and make it easier to do business. 'It is now possible for fund managers to advise on listed securities, allowing them to provide advisory services," said Kush Gupta, director at SKG investment & Advisory. He added that the revision of investment thresholds would give angel funds more flexibility to choose their investments.
What relief has Sebi offered to FPIs who invest only in government securities?
Sebi has eased compliance norms for foreign portfolio investors that invest only in government securities (GS-FPIs). Key measures include longer KYC review cycles, no need to disclose investor group structures. NRIs and OCIs can now be constituents of GS-FPIs without restrictions, and material changes can be reported within 30 days, from from 7 days. These steps aim to attract foreign capital as Indian G-Secs have been included in global bond indices since 2024-25.
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'The risk profiling for FPIs who only invest in G-Secs is now various notches lower than a mix portfolio FPI with significant easing," said Manisha Shroff, partner at Khaitan & Co. However, she flagged some legal ambiguities. 'Sebi's relaxation is currently only for existing and prospective FPIs that exclusively invest in G-Secs. The fine print on how long such FPIs need to remain sovereign-only and if there will be different and fast-tracked registration process remains to be seen."
What is the new settlement scheme for brokers involved in the NSEL case?
Sebi has introduced a one-time monetary settlement plan based on quantity and value of trades. Brokers facing enforcement actions—but not named in charge sheets or declared defaulters—can opt in to close proceedings.
The settlement mechanism for NSEL-related brokers is a bold move to unclog legacy enforcement actions, said Amit Tungare, managing partner at Asahi Legal, said. "Sebi will need to ensure that the settlements do not dilute accountability, particularly in cases involving systemic failure", he said.
