Tag: SEBI

TCS, Wipro among five firms shortlisted by SEBI for fraud detection project

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Markets regulator SEBI has shortlisted TCS, Wipro, Capgemini Technology Services, L&T Infotech and NEC Corporation India for implementing data analytics-based software to detect fraud and alert the regulator to take corrective measures and levy penalties.

The Securities and Exchange Board of India currently has a data warehousing system that acquires data from external entities such as exchanges, depositories, RTAs, and news on a daily basis. The warehouse holds data for the last 10 years. SEBI is also in the process of implementing a Data Lake which will host the data and analytical environment on which the data analytics models need to be deployed by the newly shortlisted entities.

The project is expected to be completed in 12 months from the date of signing of the agreement, said SEBI.

To check freak trades

While the cash segment of equity markets has enough safeguards including price filters and surveillance measures, such curbs aren’t present for derivatives, leaving the field open for manipulators, said a broker.

Freak trades in the equity futures and options segments are becoming more frequent. Late last month, derivative traders witnessed a sharp spike in some options contracts on the NSE. The call option contract for the NSE’s main index Nifty (16,450 strike price) for the August expiry jumped 800 per cent from ₹100 to ₹800. Similarly, the put option contract for the Bank Nifty index (37,000) strike price rose by 2,000 per cent from a low of ₹1 to touch a high of ₹2,040.

Interestingly, on all these occasions, the reversal to normal happened in a few seconds. Incidentally, it was the third such freak trade in the last two months. Such wild swing in prices triggers pre-determined stop-loss set by the traders, leading to heavy losses.

Scope of the project

SEBI has an Integrated Market Surveillance System for cross-market surveillance. It uses the SMARTS software engine for alert generation and graphical analysis.

The market regulator now intends to implement Data Analytics Projects and build Data Models to leverage artificial intelligence and machine learning.

The new software will enhance the current system to track abnormal trading behaviour through Trading Pattern Analysis at both member and client level, alert for block deal trades, circular trading besides spoofing — a form of market manipulation whereby a trader places one or more highly-visible non-bonafide orders to mislead the true value of the stock.

While the current system can identify spoofing by a single entity, there is a need to enhance the scope of identification of such trading patterns, so as to bring in those scenarios where a group of connected entities is involved in spoofing.

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Zerodha gets Sebi’s approval to set up an AMC, BFSI News, ET BFSI

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Zerodha has received a licence from capital markets regulator, the Securities and Exchange Board of India (Sebi), to set up an Asset Management Company (AMC).

The in-principle approval from Sebi will allow the Bengaluru-based startup to launch its own mutual funds, founder and chief executive Nithin Kamath tweeted on Wednesday.

Zerodha is India’s largest retail broker by registered users.

“So, we just got an in-principle approval for our AMC (MF) license. I guess now comes the hard part (sic),” Kamath tweeted.

Zerodha had applied to the capital market regulator in February 2020, just months after Sebi allowed fintech firms to enter the MF business.

A spokesperson for Zerodha did not offer comment.

Flipkart cofounder Sachin Bansal’s fintech venture Navi has also received regulatory approval to launch its own AMC.

In December 2019, Sebi eased regulations for fintech startups planning to enter the MF industry. It said entities with a net worth of Rs 100 crore and five years of being profitable were eligible to sponsor MFs.

AMCs should also maintain their minimum net worth continuously and not only towards the end of the year.

Earlier, entrants needed to have five years of experience in the financial services business and demonstrate three years of profitability, as well as maintain a net worth of Rs 50 crore.

“It’s a great move, no question. Zerodha had also applied for a licence, but Covid-19 slowed the market. We need more players to come to this market to foster innovation,” Kamath told ET in an interview in January, on Sebi’s relaxations.

“The entry barrier has stopped many (from entering the MF industry). The problem with mutual funds today is that they are very complex for retail investors. With newer players coming in, I think the products will become simpler and innovative,” Kamath had said.

The move comes at a time when Sebi has given approvals to firms such as Bajaj Finserv and discount broker Samco to launch MFs.

Navi recently applied to Sebi to launch as many as 10 new MFs, all of which are set to be passively managed. These funds mirror the performance of an underlying index and typically do not need a fund manager.

Zerodha has led the pack of new-age fintech brokers including Groww, Upstox and Paytm Money, which have seen strong traction on their platforms by retail investors as millions of Indians flocked to stock investments, attracted by the Nifty and the Sensex recording peaks repeatedly since the onset of the Covid-19 pandemic.



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SBI raises Rs 4000 crore through AT1 bonds, BFSI News, ET BFSI

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State Bank of India (SBI) has raised Rs 4,000 crore of the Basel compliant Additional Tier 1 (AT1) bonds on Wednesday at a coupon rate of 7.72 %. This is the first AT1 Bond issuance in the domestic market post the new SEBI regulations.

“The issue garnered overwhelming response from investors with bids in excess of Rs. 10,000 crores received against a base issue size of Rs. 1,000 which is an indicator of the trust the investors place on the country’s largest Bank. This also very clearly demonstrates the maturity of the Indian Investors in their selection of Issuers for such instruments” said SBI in a release.

Based on the response, the Bank has decided to accept Rs 4,000 crores at a coupon of 7.72% . This is the lowest pricing-ever offered on such debt, issued by any Indian bank since the implementation of Basel III capital rules in 2013. The AT 1 instrument is perpetual in nature, however, it can be called back by the issuer after five years or any anniversary date thereafter.

While the Bank has AAA credit rating from local credit agencies, the AT1 offering is rated AA+, which is the highest rating in the country for these instruments in view of the hybrid and high-risk nature of these instruments.

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Das emphasises importance of G-Sec market in RBI policy making

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The Reserve Bank of India (RBI) made it plain to the Securities and Exchange Board of India (SEBI) that it will not yield ground when it comes to regulation of the government securities (G-Sec) market.

RBI Governor Shaktikanta Das, on Tuesday, emphasised the importance of the central bank’s direct access and oversight of the government securities market, stating that it enables the management of stress in the foreign exchange and interest rate markets.

The Governor’s observation assumes significance as it comes in the backdrop of SEBI Chairman Ajay Tyagi seeking unification of the G-Sec and corporate bond markets, which could bring G-Sec under the market regulator’s ambit.

Critical market

Highlighting the criticality of the G-Sec market for effective discharge of RBI’s functions, Das underscored that the RBI’s regulation of it has a strong synergy with its role as the banking regulator as banks are the largest category of participants in these markets.

Unified regulation

He mentioned that this is also highlighted in the recent G30 report which identified the balkanized regulation of US Treasury markets as having adversely impacted market making.

In his address at the 21st FIMMDA-PDAI annual conference, Das highlighted that the current arrangement of the G-Sec repository residing with the RBI facilitates seamless conduct of liquidity operations and simultaneous settlement of G-Sec trading.

“This provides confidence to investors, removes custodial risk, and minimises transaction costs. Access to real time market intelligence arising from ownership or oversight of market infrastructure is critical for fine-tuning timely policy responses,” he said.

Das called attention to the fact that the current regulatory arrangement offers synergies in terms of a unified market for G-Secs, repo in G-Secs, liquidity and other monetary operations, exchange rate management, regulation for key derivative markets, public debt management, and prudential regulation of banks, the largest category among market participants.

Close coordination

He noted that the synergy between the RBI’s responsibility for key macro market variables – interest rates and exchange rates, which ensures overall financial market efficiency – and its obligation to ensure stability while keeping in mind the objective of growth is well-accepted.

“With the development of the domestic financial markets and deregulation of interest rates, effective transmission of monetary policy impulses relies on the G-Sec market being deep and liquid so as to create the intended impact on interest rates by linking expectations of future short-term rates to current long-term rates,” Das said.

Similarly, a well-functioning G-Sec market ensures efficient discharge of the public debt management function.

He also remarked that the public debt structure – quantity, composition and ownership of debt – also influences monetary conditions.

“In the wake of the pandemic, when fiscal response resulted in a sharp increase in government borrowing, the market operations conducted by the Reserve Bank not only ensured non-disruptive implementation of the borrowing programme, but also facilitated the stable and orderly evolution of the yield curve,” the Governor said.

Das stressed that monetary policy, G-Sec market regulation and public debt management, therefore, need to be conducted in close coordination, and the primary focus of such coordination is the G-Sec market.

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SBI to float At-1 bonds in domestic market, will mufual funds buy?, BFSI News, ET BFSI

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After HDFC Bank and Axis Bank successfully raised Additional Tier 1 (AT1) bonds from overseas investors, the State Bank of India is set to test the local market this week with such bonds.

State Bank of India plans to raise up to Rs 4,000 crore selling AT-1 in the local market, first by a lender in this fiscal.

The At-1 market was almost dead after the Securities and Exchange Board of India earlier this year changed the valuation rules, which were partially rolled back later.

If the issue is successful, other lenders may tap the local market rather than the overseas market.

HDFC Bank and Axis Bank have eschewed the local market this year raising funds via the AT1 route in the overseas market.

SBI bonds

SBI bonds are expected to be up for bidding on Wednesday on the electronic debt bidding platform of stock exchanges. The bonds may offer between 7.90% and 8.10% with a five-year call option, which allows investors an exit route.

AT1, or perpetual bonds, do not have any fixed maturity.

The bonds are compliant with Basel-III, an international capital standard.

SBI Capital Markets is helping the bank raise the money. It has reached out to several local investors including private banks, corporate treasuries, bond houses, retirement bodies, wealth managers and insurers.

AT1 bonds are billed as quasi-equity securities that bear a higher risk of capital losses. These are generally rated three-to-four notches lower than an issuer’s corporate credit rating.

Local rating firms Crisil and India Ratings have graded the SBI’s paper AAplus with a stable outlook.

The mutual fund position

Mutual funds, which once used to buy heavily in AT1 bonds, are lukewarm about this asset class after the banking regulator last year ordered that these instruments be written off in Yes Bank’s state-sponsored bailout. Also, on March 10, Sebi had ordered mutual funds to cap ownership of bonds with special features at 10% of the assets of a scheme and value them as 100-year instruments from next month, potentially triggering a redemption wave. Later, the capital markets regulator eased valuation rules but with some riders after the finance ministry asked it to withdraw the directive to mutual funds.

The muted response by MFs had prompted the lenders to tap the overseas market

Perpetual bond sales by banks have nearly halved to Rs 18,772 crore in FY21 from Rs 34,860 crore three years earlier.



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How it affects traders, BFSI News, ET BFSI

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From September 1, traders will have to shell out 100 per cent margins upfront for their trades due to the new peak margin norms of Sebi kicking in. Traders taking intra-day positions will be the most impacted since in the earlier system margins were calculated on end-of-the-day basis. Now, margin requirements will be calculated four times every session bringing even intraday positions under the ambit. These changes in the margin norms have created furore amongst traders as they will now have to deploy more cash as margin. ET takes a look at the impact of the new norms on market participants.

WHAT WILL CHANGE FOR TRADERS FROM SEPTEMBER 1?
Traders taking bets on futures and options (F&O) markets will have to shell out higher margin money making these trades more expensive. Essentially, they are required to cough up 100 per cent of margin upfront under the new peak margin norms. These margins would apply even to intra-day positions i.e. the ones where the trader enters and sells the contracts within the same market session. Currently, the upfront margin required is 75 per cent of the total margin. In other words, if a trader wants to buy a Nifty contract worth Rs 10 lakh, the margin at 20 per cent would be around Rs 2 lakh. Until August 30, the upfront margin was only Rs 1.75 lakh.

WHAT IS PEAK MARGIN?
Until last year, margins were collected based on end-of-the-day positions. For example, a client had exposure to Rs 1 crore worth F&O securities as on yesterday and he has taken up further exposure of Rs 1 crore during the current market session. In the old system, traders were not required to pay margin money for the Rs 1 crore additional exposure taken until the end of the session. This benefited the active traders since if the additional exposure taken was sold off by the end of the session, the transaction wouldn’t need any special margin money to be brought in. The Securities and Exchange Board of India (Sebi) introduced the peak margin system late last year and it was to be implemented in four phases: first phase with 25 per cent peak margin, second phase with 50 per cent peak margin, third phase with 75 per cent peak margin and finally the complete implementation of upfront margin with effect from September 1. Under the peak margin system, the margin requirement is no longer calculated on the basis of end-of-the- day positions. Instead, the exchanges will sample the prices four times every session and the margins would be calculated based on this. So even the intra-day positions will come under margining.

WHY THE CHANGES?
The intention behind the changes was to control the leverage being taken by some of the traders and thereby reduce systemic risks. Many traders were taking extremely risky bets intra-day which were not being captured in the margin system. Brokers used to allow such positions as long as the margin money in their bank accounts was more than total leverage taken at the end of the market session. But now, the margin will be calculated based on the four price samplings of the exchange and during every point of the trading session, the margin money must be adequate or greater than the requirement.

WHY ARE TRADERS ANGRY?
Changes in rules have evoked strong reactions from the trader and broker community since they will have to shell out more money to bet in the futures market. The core of their contention is that intra-day positions will now need upfront margins. Also, if a trader falls short of these margins during the session, he would be liable to pay a penalty. So, if there are any wild price movements and margins of a trader fall short of the requirement, the same will be penalised. Brokers lobby ANMI has made several representations to exchanges, Sebi and the finance ministry seeking relief from these new rules.



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SEBI bans Kotak Mahindra AMC from launching FMP for 6 months

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Market regulator SEBI has banned Kotak Mahindra Asset Management Company from launching any Fixed Maturity Plan (FMP) for six months for arbitrarily entering into a ‘standstill’ agreement with the promoters of Subhash Chandra-backed Essel Group.

The 2019 agreement effectively extended the maturity of these debt papers. This, in turn, delayed payment of full proceeds to investors of six FMP schemes run by the AMC.

As the name indicates, FMPs are fixed-income funds that invest in debt with maturities similar to the fund’s duration. Kotak was found to have invested in Non-Convertible Debentures of insignificant and financially handicapped entities of Essel Group, including Konti Infrapower & Multiventures Pvt. Ltd and Edison Utility Works Pvt. Ltd.

Refund of fees ordered

SEBI also levied a penalty of ₹50 lakh on the AMC. The fund house has also been directed to refund a part of the investment management and advisory fees collected from the unitholders of the six FMP schemes, equivalent to the percentage of exposure to the Zee Group NCDs.

“For a mutual fund house, which has been in this industry in India for over two decades, the least that can be expected of its AMC is to have in place a robust system for research, risk assessment and due diligence. The insensitive manner in which the AMC has actuated its system of risk evaluation and due diligence… it seems the effectiveness of its systems stood compromised,” SEBI said in its order on Friday.

In 2019, Kotak Mutual Fund entered into a first-of-its-kind standstill agreement with Essel Group after the latter expressed inability to repay the investments made by the six FMPs of the fund house.

Kotak MF had invested in the debentures of Konti Infrapower, an accounting and consulting services provider, and Edisons Utility Works, operating in the construction industry. These debentures carried a coupon of 11 per cent. The debt was secured by a pledge of Zee Entertainment Enterprise shares.

Following the default, the fund house had redeemed the FMP investors, partially withholding the returns from Essel Group.

Irked with the development, SEBI had issued a show-cause notice to the fund house for entering into an agreement with a company in default.

SEBI noted that by postponing the payment to its unit-holders, Kotak Mahindra MF segregated its units like side-pocketing. This is allowed only if the scheme’s offer document mentions it explicitly, and the fund follows the SEBI guidelines for side-pocketing; this was not done by the fund house.

Reviewing order: Kotak

Reacing to the development, a Kotak Mahindra Group spokesperson said: “In the interest of our unit-holders, we decided to provide additional time to the promoters for optimal recovery, which led to partial deferment of maturity payout. This ensured that all dues along with interest of 11.1 per cent were paid to our investors in September 2019. We are reviewing the SEBI order and will evaluate the next steps.”

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Sebi slaps Rs 50 lakh fine on Kotak Mahindra AMC; bars from launching new FMP schemes for 6 months, BFSI News, ET BFSI

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Sebi on Friday imposed a penalty of Rs 50 lakh on Kotak Mahindra Asset Management Company (AMC) and barred the fund house from launching new fixed maturity plan (FMP) scheme for six months for violating regulatory norms.

The markets regulator has directed the fund house to refund a part of the investment management and advisory fees collected from the unitholders of the six FMP schemes along with a simple interest at the rate of 15 per cent per annum.

In a statement, a spokesperson of Kotak Mahindra Group said that all the investors have been fully repaid along with applicable interest in September 2019 and the fund house is committed to protecting investor interest at all times.

The case pertains to six FMP schemes that matured in April and May 2019, which held investments in Non-Convertible Debentures (NCDs) issued by Edisons Utility Works Pvt Ltd and Konti Infrapower & Multiventures Pvt Ltd, belonging to the Essel Group and secured by pledge of equity shares of Zee Entertainment Enterprises Ltd.

Sebi found lapses on part of Kotak Mahindra AMC in carrying out due diligence and laid back approach adopted by the fund house in risk assessment while taking investment decision vis-a-vis the Zero Coupon Non-Convertible Debentures (ZCNCDs) of Essel Group entities.

The fund house has not analysed various risk parameters — credit risk, liquidity and interest rate risk etc — while evaluating the proposal to invest in the ZCNCDs of “certain insignificant and financially handicapped entities” of Essel Group such as Konti Infrapower & Multiventures and Edison Utility Works, it said.

Further, the events that took place involving the shares of ZEEL and the Essel Group from January 25, 2019 onwards clearly suggest that there were strong possibilities of default on the part of the two issuer companies to honour the redemption of the ZCNCDs on their maturities, an event which was prevented by the fund house by extending maturity dates of these ZCNCDs.

“Utter neglect of due diligence, inordinate delay in communicating with the investors, violation of the statutory sanctity of the maturity dates of the FMP schemes, permitting extension of the maturity of the ZCNCDs of the issuers in contravention of extant regulations etc, there remains no doubt in mind that the noticee has acted in gross violation of provisions of the Sebi Act, 1992, MF Regulations, 1996 as well as various circulars issued by Sebi from time to time,” Sebi said in its 84-page order.

It further said that the fund house failed to exercise due diligence and failed to disclose information about negative impact on the six FMP schemes to its investors on time.

Accordingly, Sebi has imposed a monetary penalty of Rs 50 lakh on the fund house and also restrained it from launching any new FMP scheme for a period of six months.

“The noticee (Kotak Mahindra AMC) shall refund a part of the investment management and advisory fees collected from the unitholders of the six FMP schemes, equivalent to the percentage of exposure to the ZCNCDs of the issuers in the respective schemes as on the date of maturity of the six FMP schemes,” Sebi said.

The refund is along with a simple interest at the rate of 15 per cent per annum from the date of maturity of such schemes till the date of actual payment to the respective unitholders of the said schemes, it added.

The regulator has directed to complete the exercise of payment of funds to the respective unitholders within a period of 45 days.

The order came after Sebi noticed that the investors of certain FMPs launched by the Kotak Mahindra Mutual Fund were not paid their full proceeds based on the declared Net Asset Value (NAV) of the said schemes as on their respective maturity dates.

Upon noticing the same, Sebi noted that Kotak Mahindra AMC had launched two FMPs as close ended debt schemes during November 2013 and December 2015 both of which were scheduled to mature in April 2019. These FMPs had invested in ZCNCDs of Konti and Edison.

In addition, the fund house in its made submissions to Sebi revealed that it had also subscribed to the ZCNCDs of the same issuers from four FMP schemes.

In all six schemes, the fund house had permitted the issuers to extend the maturity period of those ZCNCDs till September 30, 2019. PTI SP MKJ



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NSE directs its members to stop sale of digital gold by Sept 10, BFSI News, ET BFSI

Personal Finance

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New Delhi: National Stock Exchange (NSE) has directed its members, including stockbrokers, to discontinue the sale of digital gold on their platforms by September 10. The direction came after capital markets regulator Sebi said that certain members are providing a platform to their clients for buying and selling digital gold.

Securities and Exchange Board of India (Sebi), through a letter dated August 3, informed the exchange that the said activity is in contravention of Securities Contracts (Regulation) Rules (SCRR), 1957, and the members should refrain from undertaking any such activities.

The SCRR rules restrict all members from engaging, either as principal or employee, in any business, other than that of securities or commodity derivatives, except as a broker or agent, not involving any personal financial liability.

Accordingly, NSE directed members not to carry out such activity and comply with the regulatory requirements at all times.

“Members, currently engaging in the activity, shall cease to undertake all activities in this regard, within one month from the date of this circular during which necessary communications, regarding the discontinuation, shall be made to the respective clients,” NSE said in a circular dated August 10.

TradeSmart Chairman Vijay Singhania said digital gold units are not issued by any regulated entity. There is no method to check whether the digital gold certificate is backed with physical gold or not.

Some jeweller firms like Titan and banks were known for selling digital gold.

Digital gold does not come under the definition of securities as defined in the Securities Contract (Regulations) Act 1956.

“The circular prohibits the dealing/offering digital gold-selling via Sebi registered entities, as it is not a security as mentioned above. It may be continued to be sold by the unregulated entities, subject to RBI directions if any,” Singhania said.

Kishore Narne, Head of Commodities & Currencies, Motilal Oswal Financial Services, said, “We were distributors of the digital gold product of MMTC-PAMP, with the backdrop of exchange issuing the directives for such product to be not sold by all stockbrokers of the stock exchange; we shall be discontinuing distribution of this product”.

According to him, MMTC-PAMP will continue to be the owner of the product and retain all the holdings of gold on behalf of clients and shall be offering all the redemption and sell-back options for all the existing clients.



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ICICI Bank files cheating case against Karvy Stock Broking Ltd, BFSI News, ET BFSI

Banking & Finance

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A case has been registered against Karvy Stock Broking Ltd promoter C. Parthasarathy and others for allegedly cheating ICICI Bank to the tune of Rs 563 crore.

According to a press release issued by the police on Tuesday night, the case was booked under Sections 406 (criminal breach of trust), 420, r/w 34 ( cheating) of IPC against the accused. Funds raised by KSBL by pledging shares of its six bankers were transferred to the firm’s own bank accounts, and not into ‘Stock Broker Client Account’, which is in contravention with the SEBI guidelines, the police said. “Further, all pledges on securities were closed without approval… and securities were transferred to end clients of KSBL thereby severely impacting security of all lenders including ICICI Bank,” it said.

The case was transferred to Economic Offences Wing of Cyberabad and a special team was formed for the investigation. Parthasarathy was arrested by the city police here on August 19 on charges of defaulting on a Rs 137 crore loan taken from IndusInd Bank.

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