Sebi to amend REIT, AIF norms; proposes regulatory framework for index providers

MUMBAI: Sebi on Saturday decided to promote investments through Small and Medium REITs, enhance measures to protect interest of investors in Alternative Investment Funds (AIFs), provide flexibility for not-for-profit organisations in raising funds through social stock exchanges and also put in place regulatory framework for index providers.

The decisions were approved at the meeting of the board of the Securities and Exchange Board of India (Sebi) here.

Briefing reporters after the meeting, Sebi Chairperson Madhabi Puri Buch said the objective of the Small and Medium Real Estate Investment Trusts (SM REITs) is to help expand the market significantly so that more retail investors can have fractional ownership in REIT units.

She also said the regulator is open to looking at creating more such products.

Meanwhile, the regulator has decided to provide more flexibility for not-for-profit Organisations (NPOs) to raise funds through the social stock exchange.

The minimum issue size in the case of public issuance of Zero Coupon Zero Principal Instruments (ZCZP) by NPOs on the exchange will be reduced to Rs 50 lakh from Rs 1 crore and the minimum application size will be cut to Rs 10,000 from Rs 2 lakh.

According to a release issued by Sebi after the board meeting, the reduction in application size will enable wider participation of subscribers, including those from the retail segment.

Besides, the nomenclature of 'Social Auditor' will be changed to 'Social Impact Assessor' to provide comfort to NPOs and convey a positive approach towards the social sector.

The regulator also said that NPOs will be permitted to disclose past social impact report in the fundraising document as per their existing practice subject to disclosure of key parameters such as number of beneficiaries, cost per beneficiary and administrative overhead.

More NPOs will be made eligible for registration and fundraising through issuance and listing of ZCZP on SSE by permitting entities registered under a certain section of the Income Tax Act, 1961, as per the release.

Among other decisions, a regulatory framework will be introduced for the index providers to foster transparency and accountability in governance and administration of financial benchmarks in the securities market.

Meanwhile, the regulations for index providers will provide a framework for registration of such entities that license 'significant indices’ which will be notified by Sebi based on objective criteria.

Buch said the decision to have regulations for index providers was mainly driven by increasing inflows into passive funds, which have taken off in a big manner in the West.

To facilitate ease of compliance and strengthen investor protection in Alternative Investment Funds (AIFs), all the fresh investments made by an AIF after September 2024 should be held in demat form, as per the regulator.

Sebi has approved amendments to AIF rules, with some exceptions. Also, the mandate for the appointment of custodians will be extended to all AIFs.

Currently, the requirement applies to schemes of Category III AIFs and schemes of Category I and II AIFs with a corpus of more than Rs 500 crore.

With respect to AIFs, the regulator said, ''The mandate for appointment of custodian, currently applicable to schemes of Category III AIFs and to schemes of Category I and II AIFs with corpus more than Rs 500 crore, shall be extended to all AIFs.'' To a query, the Sebi chief said that changes in delisting norms were not taken up by the board as more data is required.

''The board suggested seeking more data driven inputs from the market as the inputs that have come so far are patchy. So, we are revisiting the same (proposals) and seeking more data,'' Buch noted.

Under the delisting process, Sebi had proposed allowing companies to delist through a fixed price mechanism instead of the existing reverse book-building process.

About extending trading time, Buch said many rounds of discussions have been held with key market intermediaries, including exchanges and clearing corporations, and investors.

''No clear view has come on why the timing should be extended. What is more important is that the views of the broking and investor communities are yet to be clearly formed,'' she said.