SEBI relaxes Superior Voting Rights

In 2019, SEBI had introduced the concept of Superior Voting Rights (SR) framework. In a move that is likely to further aid the listing of startups in India, SEBI on September 29, 2021 revised certain regulations pertaining to superior voting rights shareholders in companies.

The current framework allows issuance of superior voting rights shares to promoters or founders holding an executive position in the company desirous of listing on the Main Board. However, a sub-section of the framework was being seen as restrictive and onerous to comply with for founders who had diluted their holding but held superior voting rights shares.

Under the current framework, a superior voting rights shareholder could not be part of the promoter group at the time of listing if the collective net worth of the promoter group exceeded INR 500 crore. SEBI eased this restriction by mandating that the superior voting rights shareholder's net worth should not exceed INR 1,000 crore at the time of the proposed listing of the company.

The minimum gap between issuance of superior voting rights shares and filing of Red Herring Prospectus has also been reduced to three months from the existing requirement of six months.

In July this year, SEBI had sought market feedback on the existing framework for SR rights in order to provide flexibility to startup founders seeking to list publicly. The framework allows founders to retain more votes in the company even after the public listing and allows them to protect their SR shares for up to five years after listing.

T+1 settlement cycle

SEBI introduced an optional T+1 (Trade Day plus one day) settlement cycle for completion of share transactions to enhance market liquidity. Under the T+1 rule, stock transactions will be settled the very next day and not after two days as is the current norm. The new rule will come into force on January 1, 2022.

As per the SEBI Circular, stock exchanges can switch to the T+1 settlement cycle on any shares after giving an advance notice of at least a month to all stakeholders, including the investing community. After the switchover, the stock exchanges will have to continue with the T+1 settlement cycle for a minimum period of six months.

Key benefits of T+1 settlement cycle

  • Shortened settlement time
  • Reduced number of outstanding unsettled trades, thereby decreasing the unsettled exposure to Clearing Corporation by 50%
  • Reduced number of outstanding unsettled trades, thereby decreasing the unsettled exposure to Clearing Corporation by 50%
  • T+1 will not require large operational or technical changes by market participants
  • It will not cause fragmentation and risk to the core clearance and settlement ecosystem

RBI issues Master Directions on Prepaid Payment Instruments

The Reserve Bank of India (RBI) has issued the Reserve Bank of India Master Directions on Prepaid Payment Instruments, 2021 (MD-PPIs, 2021) on August 27, 2021. PPIs themselves are the instruments that facilitate the purchase of goods and services, the conduct of financial services, enable remittance facilities, etc., against the value stored therein.

The MD-PPIs, 2021 have made it mandatory that no entity can set up and operate payment systems for PPIs without prior authorization of RBI, and are only allowed to issue PPIs, after obtaining the required authorization from the RBI under the Payment and Settlement Systems Act, 2007 by applying to the Department of Payment and Settlement Systems (DPSS) along with a 'No Objection Certificate' from their regulatory department, within 30 days of obtaining such authorization. The provisions of MD-PPIs are applicable to all the Prepaid Payment Instruments (PPIs) Issuers and System Participants.

Key aspects

  • The new classification categories of PPIs
    • The new classification of PPIs is under two types viz. (i) Small PPIs and (ii) Full-KYC PPIs.
    • 'Small PPIs' are the instruments issued by the banks after receiving minimum details of the PPI holder, to be utilized only for the purchase of goods and services with a group of preidentified merchants. As per the new directions, Small PPIs can hold cash up to INR 10,000 per month, and not exceeding INR 1.2 lakh in a year. Funds transfer or cash withdrawal from Small PPIs is not permitted.
    • 'Full-KYC PPIs' are instruments that are not restricted to an identified group of merchants and require the 'Know-Your-Client' (KYC) process of PPI holders to be diligently processed. It also supports fund transfers and cash withdrawals.
    • An added feature of the Video-based Customer Identification Process can be used to open full-KYC PPIs as well as to convert Small PPIs into full-KYC PPIs, thus facilitating the process.
  • Interoperability
    • Through MD-PPI, 2021, interoperability has been made mandatory for all the Full-KYC PPIs, interoperability on the acceptance, and QR Codes in all modes by March 31, 2022.
    • An exception is created for PPIs issued in Mass Transit Systems (MTS) and gift PPI issuers have an option to offer interoperability.
    • It is also now mandatory for a PPI issuer to adhere to all the requirements of card networks and 'Unified Payment Interface' (UPI) including membership type and criteria, merchant on-boarding, adherence to various standards, rules, and regulations applicable to the specific payment system such as technical requirements, certifications and audit requirements, governance, etc.
    • Added safety and security measures are taken up for achieving interoperability through card networks.
  • Security features
    • Vide the MD-PPI, 2021, RBI has introduced added security measures to ensure the safety of PPI holders. PPI issuers must disclose all the important terms and conditions to the PPI holders including details about of on the charges concerned.
    • It has made a two-factor authentication compulsory for all the PPI transactions, except for gift PPIs and PPIs used in MTS.
    • Transaction alerts have been mandated for both online and offline transactions.
    • The RBI also requires PPI issuers to comply with its circulars on enhancing the security of card transactions, enhancing public awareness in the face of increasing fraud, and emandates for recurring card transactions.
    • PPI issuers shall also provide a cap on the number of transactions and transaction value for different types of transactions. However, the same cap can be allowed to change, with additional authentication and validation.
    • A mechanism for monitoring, handling and follow-up of cyber security incidents, and cyber security breaches is required to be established and shall report to DPSS for such incidents.

The changes made in the regulatory framework for the PPIs have created a level playing field for banks and nonbanks. The RBI seeks to mitigate risks with its focus on fintech solutions for the present digital economy. The RBI has also ensured security measures involving a twofactor authentication system and message alerts, along with a grievance redressal framework to bring transparency and awareness amongst the PPI users.

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