SEBI stiffens norms on pledged shares, mutual funds

Last Updated: Fri, Jun 28, 2019 16:06 hrs
SEBI (Image Courtesy: Reuters)

Mumbai: The Securities and Exchange Board of India (SEBI) here on Thursday tightened norms on promoters' pledge of shares, mutual funds and royalty payments.

The security market regulator at its board meeting took key decisions on the framework for issuance of differential voting rights (DVR) shares, the valuation of money market and debt securities by MFs, disclosure of encumbrances, amongst others.

The board also decided that payments made to related parties towards "brand usage or royalty" might be considered material, if the transaction exceeded 5 per cent of the annual consolidated turnover of the listed entity during a financial year and "would require approval of shareholders, with no related party having a vote to approve such resolutions".

On the increase in cases of promoters pledging shares to raise funds, which has recently caused wild movements in scrip of companies like Emami and Apollo Hospitals, the regulator decided, "Promoters shall be required to disclose separately detailed reasons for encumbrance whenever the combined encumbrance by the promoters and persons acting in concert crosses 20 per cent of the total share capital in the company or 50 per cent of their shareholding in the company."

In addition, the regulator mandated stock exchanges to maintain details of such encumbrance along with purpose of encumbrance, on their websites.