To strengthen the regulatory framework for joint venture investment ideas, the SEBI product manager has enhanced the value proposition and track record requirements for companies managing such concepts.
In particular, the regulator has ordered at least 20 investors and a subscription value of at least Rs 20 crore for each Commonwealth Investment Plan (CIS), according to a statement on Tuesday.
Currently, CIS rules do not mandate a minimum number of investors, a maximum retention of an investor or a minimum subscription amount.
In addition, the regulator has put a cap on cross-cutting at the Central Investment Investment Center (CIMC) to 10 per cent to avoid a collision.
To give this effect, the Securities and Exchange Board of India (SEBI) has revised the CIS regulations. The law, first notified in 1999, has not been reviewed since then.
The move comes after the SEBI board approved a proposal at this at its board meeting in March.
The new law aims to strengthen regulatory framework for joint investment programs and give CIMCs the ability to effectively discharge their responsibilities to investors.
The CIS is an investment vehicle integrated in the end-to-end investment field and features of which ideas are listed on an exchange.
The CIS process is two-step as there are two elements in the process – CIMC and supervisors. The CIMC was created to float and manage a CIS and was appointed lawyer as the custodian of funds and assets.
With regard to selection requirements, SEBI states that applicants or advertisers should have a sound record and a general reputation of honesty and integrity in all their business dealings.
The applicant should have been doing business in the relevant field in which CIS proposals have been proposed to apply, for a period of at least five years; the average value should be positive at all immediately before the age of five and should have gains in three out of five years.
The CIMC needs to have an average value of Rs 50 crore as compared to the current demand of Rs 5 crore.
“The application has an average value of not less than Rs 50 crore on the basis of progress: If the applicant will have an average value of not less than Rs 100 crore until he has had profits for five consecutive years”, in the case of Related question: Profit is not fulfilled, SEBI said.
Currently, there is no such requirement for a reasonable trade, average value or profit. With no limit on minimum investment by the investor, retail investors are the primary market base for the CIS.
Under the new regulation, each CIS will have a minimum subscription value of Rs 20 crore and each CIS needs to have at least 20 investors and no single investor will acquire more than 25 per cent of the assets under the control of such ideas.
To avoid a conflict of interest, the regulator has restricted a CIMC and the division of party / group / shareholders in one opinion by 10 percent or representative on the rival CIMC board.
In addition, the mandatory investment of the CIMC and the selected staff in the CIS is to align their interests with that of the CIS.
Furthermore, SEBI said that the CIS will not be open for subscription for more than 15 days.
However, the idea may be open for subscription for a maximum of another 15 days subject to public notice distribution by CIMC before the end of the first 15 days.
Currently, the limit is for 90 days.
Further, the director has costs and expenses to raise money for the idea. In particular, single certificates against receipt of an application will be distributed as soon as possible but not later than five business days from the closing date of the first subscription list.