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Sebi may ease minimum holding requirement for REITs, InvITs in special purpose vehicle

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Mains Paper 3: Economy | Growth

From UPSC perspective, the following things are important:

Prelims level: Particulars of the SPV

Mains level: The decision may help Real Estate Sector.


SEBI’s decision on the special purpose vehicle (SPV)

  1.  The SEBI is likely to reduce the minimum holding requirement of the trusts(REITs and InvITs) in the SPV to 50 per cent from existing 51 per cent

Possible effects of the decision

  1. The decision may ease acquisition of assets by Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs)
  2. The move is expected to give stimulus to the real estate sector in the country

Current regulations

  1. The current regulations require that a REIT should hold not less than 51 per cent of equity share capital in the underlying SPV


Special Purpose Vehicle

  1. A special purpose vehicle/entity (SPV/SPE) is a subsidiary company with an asset/liability structure and legal status that makes its obligations secure even if the parent company goes bankrupt
  2. An SPV/SPE is also a subsidiary corporation designed to serve as a counterparty for swaps and other credit sensitive derivative instruments
  3. Although the SPVs/SPEs are used to isolate financial risk, due to accounting loopholes, these vehicles may become a financially devastating way for CFOs to hide debt

Corporate governance: focus on SEBI

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Mains Paper 3: Economy | Inclusive growth and issues arising from it.

From UPSC perspective, the following things are important:

Prelims level: What is corporate governance?

Mains level: It is an important issue, as SEBI has constituted a committee on it.


Market Participants are discussing the issue of ‘corporate governance’

  1. This issue has become the topic of discussion due to the recent exit of Vishal Sikka from the Infosys
  2. Many market participants wants SEBI to intervene in such matters to protect the interest of investors, especially the retail segment

Committee on corporate governance

  1. SEBI had constituted a committee on corporate governance under the chairmanship of Uday Kotak in June this year
  2. The committee is expected to submit its report within four months


Corporate governance 

  1. Corporate governance is the system of rules, practices and processes by which a company is directed and controlled
  2. Corporate governance essentially involves balancing the interests of a company’s many stakeholders, such as shareholders, management, customers, suppliers, financiers, government and the community
  3. Since corporate governance also provides the framework for attaining a company’s objectives, it encompasses practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure

SEBI exempts lenders investing in stressed co from open offer

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Mains Paper 2: Polity | Statutory, regulatory and various quasi-judicial bodies.

From UPSC perspective, the following things are important:

Prelims level: Particulars of the SEBI

Mains level: The decision will help companies to solve their problem of stress assets


Relaxed norms by SEBI

  1. SEBI relaxed norms for a stake purchased in distressed listed companies by lenders, exempting them from making open offers for shareholders
  2. It is a relief to banks and other lenders holding stressed assets
  3. It will help listed companies in distress, as it will benefit their shareholders and lenders

Relaxation is subject to some conditions

  1. The relaxation will be subject to certain conditions, including shareholdersapproval of the stake acquisition by way of special resolution
  2. Also, It will be subject to a lock-in of their shareholding for a minimum three years

New price discovery method for commodity spots

  1. Context: SEBI to introduce a new price discovery mechanism for the spot market
  2. Aim: To ensure fairer pricing at spot market
  3. Price Polling: This mechanism has been suggested for all commodities and their derivatives, based on quality and quantity
  4. This will also ensure that price realisation is above minimum support prices for all commodities
  5. Problem: Current price discovery is distorted by traders with vested interests, lack of transparency

What is price polling?

  1. Active players from the physical market belonging to different segments are chosen as polling participants
  2. This ensures that the exchange gets non-biased spot rate
  3. Prices are polled twice a day from these participants
  4. The polled prices are then subjected to some statistical process to arrive at the final benchmark price

SEBI to regulate gold exchange

  1. Context: Finance ministry has decided that the proposed gold exchange will be regulated by SEBI
  2. Effect: markets are expecting all regulations, including ownership related, to be as per SEBI norms
  3. Earlier opinion: gold spot market is not regulated and hence gold exchange can not be regulated
  4. Govt opinion: spot agri markets are under states but gold is not, therefore Centre can decide about gold trading

Agriculture Minister calls for better developed futures markets for farmers

  1. The better developed futures markets for agricultural commodities will be significant for farmers, as it could help them secure fair price for their products
  2. Most of the Indian farmers are small and marginal and do not enjoy specific capacity to transact the deals concerned
  3. They deal with their business in low-benefiting markets and are victimized to exploitation owing to limited awareness about marketing
  4. A better-developed futures markets for farmer specially for agricultural commodities will be of great importance
  5. The govt is working towards developing National Agriculture Market

Sebi to make corporate, green bonds investor friendly

At present, corporates tap overseas market to raise funds via green bonds.

  1. The board of the Securities and Exchange Board of India in its meet is expected to ease norms for trading in corporate bonds.
  2. The regulator is likely to frame the guidelines to list the so-called green bonds on domestic exchanges.
  3. Sebi is also expected to announce the norms for raising money through green bonds.
  4. These bonds are for those who want to invest in environment-friendly projects such as clean water and energy or even waste management.

Government announced the merger of FMC with SEBI

A move to boost derivatives regulation & encourage more competition and better price convergence.

  1. Amalgamation of Forward Market Commission (FMC) and SEBI would bring convergence of regulations in the commodities and equity derivatives markets.
  2. SEBI needs to have a proper mechanism to capture any aberrations in the physical market that would disrupt the derivatives market.
  3. SEBI has created a separate Commodity Cell and has set up new departments for regulation of commodities derivatives market.
  4. An internal committee was earlier set up at SEBI to evaluate and suggest regulatory changes for merger and prepare a roadmap for the same.

How will SEBI-FMC merger help sustainability of financial markets? (2/2)

  1. Once the merger is done, this will allow avenues for various types of products that were not allowed to be traded under the outmoded Forward Contracts Regulation Act.
  2. These include especially options and index based products.
  3. We won’t go into depth for now. For now, note that this will make it possible to have trading in water futures and options.
  4. It might also create the opportunity for many derivative products based on “global commons” (like CO2 emission) to succeed.

How will SEBI-FMC merger help sustainability of financial markets? (1/2)

  1. FM Arun Jaitley announced Forward Markets Commission’s (FMC) merger with SEBI in his Budget speech of 2015.
  2. FMC = Chief regulator of commodity futures markets in India. Allows commodity trading in 22 exchanges in India, of which 6 are national.
  3. Since futures traded in India are traditionally on food commodities, the agency was originally overseen by Ministry of Consumer Affairs, Food and Public Distribution.
  4. In Sept 2013, the commission responsibility was moved to the Ministry of Finance to reflect that futures trading was becoming more and more a financial activity.

:( We are working on most probable questions. Do check back this section.

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