The Securities and Exchange Board of India (SEBI) has unveiled a series of significant reforms aimed at revitalizing the Initial Public Offering (IPO) market and increasing demand. These changes are set to reshape the landscape for anchor investors, mutual funds, and retail participants in the primary market.

Expansion of Anchor Investor Base

SEBI has broadened the definition of anchor investors to include:

• Insurance companies registered with the Insurance Regulatory and Development Authority of India (IRDAI)
• Pension funds registered with the Pension Fund Regulatory and Development Authority (PFRDA)

This expansion allows these entities to participate under the domestic mutual funds category, potentially increasing the pool of institutional investors in IPOs.

Enhanced Quota for Mutual Funds

SEBI has increased the mutual funds quota from 33% to 40%. This adjustment is expected to provide mutual funds with greater allocation in public issues, potentially leading to more stable institutional participation.

Relaxation of Anchor Investor Limits

To accommodate foreign portfolio investors facing constraints due to Permanent Account Number (PAN) requirements for each fund, SEBI has relaxed the anchor investor limits. The permissible number of anchor investors has been increased from 10 to 15 per ₹250 crore allocation. This change is designed to facilitate easier participation for foreign investors in the anchor book.

Merger of Alternative Investment Funds Categories

For anchor allocations up to ₹250 crore, SEBI has merged Category I and II alternative investment funds. This consolidation allows for 2-15 investors with a minimum allotment of ₹5 crore per investor, streamlining the process for these investment vehicles.

Retention of Retail Quota

Contrary to earlier proposals, SEBI has decided to maintain the current retail quota of 35% in large IPOs exceeding ₹5,000 crore. Instead of reducing this quota to 25%, the regulator plans to address concerns of large issuers by reducing minimum dilution requirements.

Market Growth and Future Outlook

SEBI's reforms come against the backdrop of significant growth in India's capital markets over the past five years. The regulator noted that average main board IPO sizes typically exceed ₹300-₹500 crore, indicating a robust primary market.

These comprehensive changes are expected to inject new vigor into the IPO market, potentially leading to increased participation from a diverse set of investors and improved liquidity in the primary market. As these reforms take effect, market participants will be keenly watching their impact on upcoming public issues and overall market dynamics.

In a move aimed at enhancing transparency and addressing conflict of interest concerns, an external panel established by the Securities and Exchange Board of India (SEBI) is set to recommend that the chairman and senior officials of the market regulator publicly disclose their assets. This development comes in the wake of allegations made by Hindenburg Research against SEBI Chairperson Madhabi Puri Buch.

Background of the Recommendation

The panel was formed following Hindenburg Research's claims that Buch held investments in offshore funds connected to the Adani Group while SEBI was investigating the conglomerate. Both Buch and Adani have denied these allegations. The recommendations would align SEBI's practices with global standards, similar to those followed by the U.S. Securities and Exchange Commission.

Key Recommendations

The panel's suggestions include:

1. Public Asset Disclosure: The chairman and senior officials of SEBI would be required to publicly disclose their assets.
2. Stricter Regulations: Applying more stringent employee regulations to board members.
3. Investment Restrictions: Imposing limitations on equity holdings and trading for officers and their families.

Current Policy vs. Proposed Changes

Current Policy

• SEBI officials are required to confidentially disclose their holdings.

Proposed Changes

• Public disclosure of holdings
• Establishment of clearer processes for disclosures
• Implementation of recusal procedures
• New guidelines for investments

Implications and Global Alignment

These recommendations, if implemented, would significantly increase transparency within India's market regulator. By aligning with global practices, SEBI aims to bolster investor confidence and address potential conflicts of interest more effectively.

The move reflects a growing trend towards greater accountability and transparency in financial regulatory bodies worldwide. As markets become increasingly complex and interconnected, such measures are seen as crucial for maintaining the integrity of financial systems and protecting investor interests.