Sebi board to lay down broad framework for ‘GIFT’ on Sunday

The board of Securities and Exchange Board of India (Sebi) in its quarterly board meeting on Sunday is likely to define a broad framework of liberalised regulations for the financial institutes setting up shop in the Ahmadabad situated Gujarat International Finance Tech-City (GIFT).

Sources indicate that the Sebi board is also likely to exempt companies from the provisions of takeover code under the Sebi Act if the entities are converting debt to equity under corporate debt restructuring.

The Sebi board would be addressed by the Finance Minister, Arun Jaitley as a part of the customary post-Union budget consultation.

During the budget speech the Finance Minister had announced that the regulations for the GIFT would be issued in March.

To enable liberalised regulations for institutes set up in the GIFT Sebi’s legal department has narrowed down the laws that would require amendments.

“We are likely to clear the regulations that would be applicable for GIFT situated institutes, they would not be governed under the present scheme of things,” said a source close to the development.

According to sources, the markets regulator would put in place enabling provision for setting up international exchanges for equity, currency and commodity trading in the GIFT city. For clearing and settlement depository participants would need to have a presence in the finance Social Economic Zone (SEZ). Brokerage services, investment managers would be allowed to set shop in the areas. Distribution of off-shore funds, merchant banking and investment banking would also be some of the activities allowed in the centre.

Addressing queries from reporters, Sebi chief UK Sinha had said on Friday that the regulator would come out with formulations and regulations for GIFT before the end of this month.

“GIFT has been announced in the Budget and the time frame has also been given, effective April 1. We’re in constant touch with RBI (Reserve bank of India). Sebi and RBI will come out with formulations before April 1,” he had said.

A number of issues are being resolved which includes jurisdiction and application of the Foreign Exchange Management Act (Fema).

The board of RBI during the monetary policy review last month had stated that it is in consultation with Sebi to waive the provisions of takeover code in some circumstances and issue capital guidelines while converting debt to equity.

Sources indicate that Sebi has conceded to the RBI’s proposition of exempting such conversions from the takeover code. Sebi will clear a discussion paper in the same regard.

In a monetary policy statement, the RBI had stated, “Very often, the share prices of companies whose debt is being restructured, in accordance with the stipulations of ICDR Regulations are found to be not in consonance with their intrinsic value.” This result in upfront allocation of disproportionate share of loss on restructuring to banks, the statement added.

Additionally the Sebi board is also likely to take forward the budget announcement of the merger of Forward Markets Commission (FMC) with Sebi, though the final contours of the merger may not be announced.

The announced merger of the FMC with Sebi would be carried out soon, Sinha had said, adding Sebi had offered some procedural suggestions in this regard.