SEBI’s 204th Board Meeting: A Look at Key Decisions

The Securities and Exchange Board of India (“SEBI”) convened its 204th Board Meeting in Mumbai on March 15, 2024.[1] During this session, several significant decisions were taken to enhance the regulatory framework governing the Indian securities market. This article provides an overview of the key approvals granted by SEBI in the said Board Meeting.

  1. Expediting timelines: Launch of beta version of T+0 settlement cycle approved

SEBI has approved the launch of the beta version of optional T+0 settlement. This initiative allows for same-day settlement on an optional basis for a limited set of 25 scrips with a select group of brokers.

The existing T+1 rolling settlement cycle was introduced back in September 2021 and was fully implemented in January of last year. The significant advancements in technology, architecture, and capacity within Market Infrastructure Institutions (“MIIs”) have created opportunities to further expedite clearing and settlement timelines. Recognising the potential benefits of shortening settlement cycles, such as enhanced cost efficiency, transparent charges, and improved risk management across the securities market, it was proposed to introduce the T+0 settlement cycle on an optional basis, alongside the existing T+1 cycle. Days after the launch was approved by the Board, a circular was issued providing certain operational guidelines and directives to MIIs.[2]

  1. Certain FPIs exempted from additional disclosure requirements

The Board approved a proposal to exempt additional disclosure requirements for Foreign Portfolio Investors (“FPIs”) with over 50% of their India equity Assets Under Management (“AUM”) in a single corporate group. This exemption applies if the concentrated holdings of these FPIs are in a listed company with no identified promoter, provided certain conditions are met:

i) The FPI holds not more than 50% of its India equity AUM in the corporate group, excluding its holding in the parent company with no identified promoter.

ii) The combined holdings of all such FPIs in the company with no identified promoter, which exceed the 50% concentration criteria and are not exempted, are less than 3% of its total equity share capital.

SEBI has elaborated on the criteria for exempting FPIs in its circular dated March 20, 2024.[3]

  1. Material changes by FPIs categorised into 2 types, timelines for their disclosure relaxed

The Board approved a proposal to extend the timelines for the disclosure of material changes by FPIs, aiming to facilitate ease of doing business. Currently, FPIs are mandated to report material changes to their Designated Depository Participant (“DDP”) within seven working days. These material changes will now be categorised into two types:

Type I – FPIs are required to notify their DDP of these material changes within seven working days of occurrence, with supporting documents within 30 days.

Type II – FPIs are required to inform their DDP of these material changes along with any supporting documents within 30 days of occurrence.

  1. Flexibility provided in dealing with securities subsequent to expiry of FPI registration

To enhance the ease of conducting business for FPIs, the Board has approved the following measures:

(a) Expired FPI registrations due to non-payment can be reactivated within 30 days. During this period, FPIs can sell their securities. If the registrations are not reactivated, a 180-day window is provided for securities disposal.

(b) A minimum period of 180 days, or until the end of the registration block, is ensured for securities disposal in cases of adverse compliance changes in the FPI’s home jurisdiction or non-submission of required documents.

(c) If securities remain unsold after the initial 180-day period:

I. FPIs have an additional period of 180 days for disposal of securities, with a 5% financial disincentive on sale proceeds, which shall be credited by the custodian to SEBI’s Investor Protection and Education Fund (“IPEF”).

II. The securities remaining unsold after the expiry of the additional 180-day period will be deemed to be compulsorily written off by the FPI.

(d) For existing cases, FPIs with expired registrations have a one-time opportunity of 360 days to dispose of securities, with the first 180 days exempt from financial disincentives. Subsequently, any unsold securities will be compulsorily written off. Such unsold securities will be transferred to an escrow account managed by an exchange broker. The broker will be required to sell the securities at market price and transfer the sale proceeds to SEBI’s IPEF.

  1. Amendments to facilitate ease of doing business for companies heading for IPOs

The Board has approved the following amendments to SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018:

(a) Eliminating the one per cent security deposit requirement in public or rights issues of equity shares.

(b) Allowing promoter group entities and non-individual shareholders holding more than five per cent of post-offer equity share capital to contribute towards minimum promoters’ contribution (“MPC”) without being classified as promoters.

(c) Considering equity shares from the conversion of compulsorily convertible securities held for a year before filing the DRHP for meeting MPC requirement.

(d) Revising the requirement for fresh filing for increasing or decreasing the size of offer for sale (“OFS”) based on either the issue size in rupees or the number of shares disclosed in the draft offer document.

(e) Providing flexibility to extend the bid or offer closing date by at least one day in case of force majeure events, instead of the current requirement of at least three days.

  1. Changes to LODR Regulations to ease compliance

Certain amendments to the SEBI (Listing Obligations and Disclosure Requirements), Regulations, 2015 (“LODR Regulations”), have been approved. The changes introduced are as follows:

(a) The compliance requirements for listed entities regarding market capitalisation will now be based on the average market capitalisation of the six months ending on December 31, rather than a single day’s market capitalisation on March 31. Additionally, to ease compliance, a sunset clause of three years is being introduced, which will cease the applicability of market capitalisation-based provisions after this period.

(b) The timeline for filling vacancies of Key Managerial Personnel has been extended from three months to six months.

(c) The prior intimation time for board meetings had been reduced to two working days.

(d) Listed entities are now permitted a longer gap of 210 days between two consecutive meetings of the Risk Management Committee, offering them flexibility in scheduling these meetings.

  1. Verification of market rumours: New measures to ensure uniform approach

To ensure a consistent approach to verifying market rumours by equity listed entities, the Industry Standards Forum (“ISF”), composed of ASSOCHAM, CII, and FICCI, collaborated on a pilot project. This project aimed to establish standards for effectively implementing rumour verification requirements in consultation with SEBI. Following discussions with ISF and stakeholders, the Board approved the below measures to facilitate a uniform approach:

(a) Specifying objective and uniformly assessing criteria for rumour verification based on material price movements of the listed entity’s equity shares.

(b) Considering unaffected prices for transactions where pricing norms are prescribed under SEBI Regulations, provided that the rumour related to such transactions is confirmed within twenty-four hours of the material price movement.

(c) Mandating timely responses from promoters, directors, key managerial personnel, and senior management of the listed entity for verifying market rumours.

(d) Clarifying that unverified events or information reported in print or electronic media will not be considered as ‘generally available information’ under SEBI (Prohibition of Insider Trading) Regulations, 2015.

  1. Category I and II AIFs allowed to pledge equity holdings in infrastructure sector investee companies

To enhance ease of business for Alternative Investment Funds (“AIFs”) and promote private capital participation in infrastructure financing, the Board has approved a measure granting flexibility to Category I and II AIFs. This measure allows these AIFs to create an encumbrance on the equity of their investee companies in the infrastructure sector. This enables the investee companies to raise debt or loans more easily, provided they adhere to specific conditions, including compliance with RBI regulations.

The infrastructure sector companies eligible for this provision are those engaged in the development, operation, or management of projects within the infrastructure sub-sectors listed in the Harmonised Master List of Infrastructure sub-sectors issued by the Government of India.

  1. AIFs mandated to conduct due diligence of investors and investments

The SEBI Board has approved the proposal of mandating AIFs, their Managers, and Key Management Personnel to conduct specific due diligence on their investors and investments. This measure aims to prevent AIFs from circumventing regulations administered by financial sector regulators. By ensuring verifiable compliance with these due diligence requirements, the proposal sets the stage for the introduction of additional ease of doing business measures for AIFs, facilitating sustained capital formation. To ensure clarity and consistency, the Industry Standards Forum for AIFs, in consultation with SEBI, will formulate specific implementation standards for conducting due diligence on AIF investors and investments.

  1. High value debt listed entities: One-year extension granted for mandatory applicability of listing norms

Approval has been accorded for extending the timeline for the mandatory applicability of listing norms, specifically Regulations 16 to 27 of the LODR Regulations, for high value debt listed entities till March 31, 2025. Hence, the said provisions will be applicable on a ‘comply or explain’ basis during the period leading up to the new deadline.

  1. Unliquidated investments can be carried forward into ‘Dissolution Period’ after expiry of AIF’s tenure

Under this approval, AIFs are permitted to retain unliquidated investments, necessitated by a lack of liquidity during the winding-up process, within the same scheme of the AIF. They may then enter a Dissolution Period, during which the value of such investments will be recognised according to SEBI norms for inclusion in the manager’s track record and reporting to Performance Benchmarking Agencies. This Dissolution Period replaces the existing option of initiating a new scheme, known as the Liquidation Scheme, which was introduced last year. Additionally, the Board has sanctioned a one-year extension of the Liquidation Period for AIF schemes dealing with unliquidated investments, whose initial Liquidation Period has expired in the past or is set to expire within three months from the date of notification of amendments to AIF Regulations, subject to specified conditions.

  1. Framework approved for issuance of subordinate units by privately placed InvITs

The Board approved amendments to the SEBI (Infrastructure Investment Trusts) Regulations, 2014, to establish a framework for the issuance of subordinate units by privately placed InvITs. This framework is designed to address valuation gaps that may occur between the Sponsor (the asset seller) and the InvIT (the asset buyer) and includes risk mitigation measures for these units.

Though the 2014 Regulations allow InvITs to issue subordinate units to sponsors and their associates, there is no framework providing a detailed mechanism as of yet. In light of the same, SEBI came out with consultation papers dated December 9, 2023, and January 10, 2024, presenting the proposed framework (click here and here to read more about the proposals). However, to begin with, the scope of the amendments approved by the Board is limited to the issuance of subordinate units by privately placed InvITs.

  1. Stock exchange to be recognised as supervisory body for research analysts and investment advisers

A decision has been taken to recognise a stock exchange as the Research Analyst Administration and Supervisory Body (“RAASB”) and the Investment Advisers Administration and Supervisory Body (“IAASB”). Incidentally, the validity of recognition granted to BSE Administration and Supervision Limited for the administration and supervision of Investment Advisers will soon come to an end.

Similar to the treatment of Investment Advisors, the RAASB framework will not entail fees for Research Analysts. Additionally, to ensure smooth implementation and avoid disruption, existing registered Research Analysts and Investment Advisers will be automatically enlisted.

  1. SEBI Budget approved

The Board also approved the SEBI Budget for the financial year 2024-25.

Takeaways

SEBI’s decisions certainly reflect its commitment towards furthering ease of doing business. Notably, AIFs are enabled to carry forward unliquidated investments into the Dissolution Period after expiry of the Fund’s tenure. This follows that the investments may be held in the same AIF scheme without having to launch a Liquidation Scheme. SEBI has also provided for flexibility when it comes to the creation of encumbrance on the equity of AIF’s infrastructure sector investee companies. At the same time, SEBI strikes a balance by obligating AIFs to carry out due diligence of their investors and investments. Various other stakeholders including FPIs, Iisted companies, etc. stand to benefit from the decisions. Moreover, the new developments will expedite clearing and settlement timelines, prevent circumvention of regulations, and boost infrastructure development.

References:

[1] Press release on the Board Meeting, dated March 15, 2024, is available at: https://www.sebi.gov.in/media-and-notifications/press-releases/mar-2024/sebi-board-meeting_82286.html

[2] Circular dated March 21, 2024, can be accessed at: https://www.sebi.gov.in/legal/circulars/mar-2024/introduction-of-beta-version-of-t-0-rolling-settlement-cycle-on-optional-basis-in-addition-to-the-existing-t-1-settlement-cycle-in-equity-cash-markets_82455.html

[3] Available at: https://www.sebi.gov.in/legal/circulars/mar-2024/amendment-to-circular-for-mandating-additional-disclosures-by-fpis-that-fulfil-certain-objective-criteria_82418.html

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Photo by Roman Castillo on Pexels

SEBI’s decisions certainly reflect its commitment towards furthering ease of doing business. Notably, AIFs are enabled to carry forward unliquidated investments into the Dissolution Period after expiry of the Fund’s tenure. This follows that the investments may be held in the same AIF scheme without having to launch a Liquidation Scheme. SEBI has also provided for flexibility when it comes to the creation of encumbrance on the equity of AIF’s infrastructure sector investee companies. At the same time, SEBI strikes a balance by obligating AIFs to carry out due diligence of their investors and investments. Various other stakeholders including FPIs, Iisted companies, etc. stand to benefit from the decisions. Moreover, the new developments will expedite clearing and settlement timelines, prevent circumvention of regulations, and boost infrastructure development.

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REIT, InvIT Subordinate Units: Examining SEBI’s Additional Proposals

On 10 January 2024, the Securities and Exchange Board of India (“SEBI”) released a consultation paper, titled “Additional Proposals Regarding Framework for Issuance of Subordinate Units–REITs and InvITs”.[i] This paper adds on to the proposals suggested by SEBI in its consultation paper on the same subject, issued last month (“2023 Proposals”).[ii] The latest consultation paper by SEBI suggests substantial changes to the regulatory framework regarding subordinate units issued by Real Estate Investment Trusts (“REITs”) or Infrastructure Investment Trusts (“InvITs”), which have been discussed in this article.

Background

The existing framework governing REITs and InvITs provides for all unit holders to have equal rights, as regards voting rights and right of distribution. However, it is permissible to issue “subordinate units” exclusively to sponsors or their associates. Sponsors under the SEBI (REIT) Regulations, 2014, are those persons who set up the REIT.[iii] The subordinate units issued to sponsors have inferior voting rights or any other rights compared to ordinary units.[iv] The consultation paper, thereby, proposes changes to three aspects linked to the issuance of subordinate rights by REITs and InvITs. These are (i) incorporating a ceiling on subordinate units which can be issued to sponsors or their associates; (ii) bringing uniformity in the nature of rights conferred by subordinate units; and (iii) dealing with changes in terms and conditions of the subordinate units after issuance.

Additional Proposals

The first proposal deals with the specification of a ceiling (in percentage) on subordinate units issued by REITs or InvITs. The paper acknowledges that subordinate units are primarily issued to bridge the difference in the valuation of an asset, as perceived by the sponsor and the REIT or InvIT. This point is explained with an illustration, wherein the sponsor’s asset valuation and the REIT’s asset valuation have a difference of INR 100 crores. In such a case, the REIT can issue subordinate units for this amount. The terms of issuance of such REITs may also provide for the conversion of the subordinate units into ordinary units after 5 years if specific pre-decided performance benchmarks are satisfied.

The problem identified by SEBI with the existing framework is two-fold. Firstly, if the performance benchmarks are met, the units will automatically be converted into ordinary units, resulting in the benefits of capital appreciation accruing only to the sponsor. Secondly, the conversion to ordinary units would necessarily dilute the holding of the existing unit holders of the REIT or InvIT. Keeping this in mind, the proposal seeks to limit the issuance of subordinate units at the time of acquisition to 10% of the price at which the asset is acquired.

The second aspect covered in the paper deals with bringing uniformity in the nature of rights that subordinate units confer on the sponsors or their affiliates. Owing to the lack of clarity on what kind of rights the subordinate units confer on the unit holders, it is proposed that the subordinate units shall only carry inferior voting rights, inferior distribution rights, or both. In addition to this, REITs will not be permitted to issue multiple classes of subordinate units. This means that an REIT would not be able to issue one class of subordinate units with 40% distribution rights and another class with 70% distribution rights.

The third aspect revolves around the permissibility of changing terms and conditions after the issuance of the units. The 2023 Proposals envisaged a one-time extension of the entitlement date, which is the date on which the subordinate units get converted into ordinary units if the required benchmarks are satisfied. However, this one-time extension of the entitlement date was subject to stringent conditions. Recognising the importance of the terms and conditions of the issuance of the subordinate units, which include inter-alia the performance benchmark agreed upon for conversion into ordinary units, SEBI proposes to prohibit any amendment to the terms and conditions of the subordinate units after their issuance. 

Conclusion

SEBI’s consultation paper seeks to expand on the 2023 Proposals and make it even more comprehensive and detailed. The proposals aim to prioritise the interests of the individual unit holders of the REITs and InvITs, especially retail investors. This is evident from the consultation paper, with many of the proposed changes being put forth with the intention of putting investors or unit holders on the same pedestal as the sponsor, a case in point being the capped limit proposed for issuance of subordinate units so that the holding of the investors is not diluted by a sizeable margin. Additionally, the proposals concerning the nature of rights emanating out of subordinate units, and prohibition on changing vital terms and conditions after the issuance of the units, are an effort to bring in much-needed uniformity and clarity to the framework for issuance of subordinate units by REITs and InvITs.

References:

[i] Available at: https://www.sebi.gov.in/reports-and-statistics/reports/jan-2024/consultation-paper-on-additional-proposals-regarding-framework-for-issuance-of-subordinate-units-reits-and-invits_80548.html.

[ii] Consultation Paper on Framework for issuance of subordinate units and Unit Based Employee Benefits –REITs and InvITs; available at: https://www.sebi.gov.in/web/?file=https://www.sebi.gov.in/sebi_data/attachdocs/dec-2023/1702062121907.pdf#page=1&zoom=120,-6,792

[iii] Regulation 2(zt) of the SEBI (REIT) Regulations, 2014; available at: https://www.sebi.gov.in/legal/regulations/feb-2023/securities-and-exchange-board-of-india-real-estate-investment-trusts-regulations-2014-last-amended-on-february-14-2023-_68061.html

[iv] Regulation 4(2)(g) of the SEBI (REIT) Regulations, 2014; available at:  https://www.sebi.gov.in/legal/regulations/feb-2023/securities-and-exchange-board-of-india-real-estate-investment-trusts-regulations-2014-last-amended-on-february-14-2023-_68061.html

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Photo by Pasqualino Capobianco on Unsplash

SEBI’s proposals aim to prioritise the interests of the individual unit holders of the REITs and InvITs, especially retail investors. This is evident from the consultation paper, with many of the proposed changes being put forth with the intention of putting investors or unit holders on the same pedestal as the sponsor, a case in point being the capped limit proposed for issuance of subordinate units so that the holding of the investors is not diluted by a sizeable margin. Additionally, the proposals concerning the nature of rights emanating out of subordinate units, and prohibition on changing vital terms and conditions after the issuance of the units, are an effort to bring in much-needed uniformity and clarity to the framework for issuance of subordinate units by REITs and InvITs.

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REIT, InvIT Subordinate Units: Insights into Proposed Framework

The Securities and Exchange Board of India (“SEBI”) recently issued a consultation paper dated December 9, 2023 (“Consultation Paper”)[1], that deals with the lacunae in the SEBI (Real Estate Investment Trusts) Regulations, 2014 (“REIT Regulations”)[2] and SEBI (Infrastructure Investment Trusts) Regulations, 2014 (“InvIT Regulations”)[3] regarding the issuance of subordinate units and employee benefits. The objective of the Consultation Paper is to propose a regulatory framework for issuing subordinate units of REITs and InvITs to sponsor(s), their associates and sponsor group. Vide this Consultation Paper, SEBI also seeks opinion on the framework for unit-based benefits for the employees of the Manager of REIT and the Investment Manager of InvIT.

Framework for Issuing Subordinate Units

Regulation 4(2)(g) of the REIT Regulations and Regulation 4(2)(h) of the InvIT Regulations provide for equality among unit holders, ensuring no superior voting or additional rights for any individual. However, the proviso to these regulations allows for the issuance of subordinate units exclusively to sponsors and their associates. These subordinate units, while maintaining an overall sense of equality, have inferior voting or other rights compared to regular units, establishing a distinct category for sponsors and associates within the regulatory framework. Nevertheless, SEBI, to date, has not prescribed a mechanism for the mode and conditions of issuing subordinate units to sponsors and their associates.

SEBI’s Hybrid Securities Advisory Committee (“HySAC”)[4] has proposed several significant norms central to the fact that subordinate units are issued only to the sponsor(s), its associates and sponsor group and these units are designed to bear inferior voting or other rights compared to regular units. Three significant aspects highlighted in the consultation paper are noteworthy. Firstly, these subordinate units can be issued during the initial or subsequent offerings, but any post-initial issuance necessitates prior approval from 75% of unitholders by value, excluding votes from sponsors, associates, and related parties. Secondly, subordinate units come with a mandatory lock-in period until conversion to ordinary units or extinguishment, with a minimum one-year gap between issuance and conversion. The regulation prescribes that converted units shall be listed and tradeable on the stock exchanges only upon approval from the stock exchanges. Finally, following the issuance of subordinate units, any proposed modifications to their terms and conditions highlighted in the REIT or InvIT Trust Deed require approval from 75% of ordinary unitholders by value and unanimous approval from subordinate unitholders. The framework also covers the recommendation and conversion process, performance benchmarks the requirement of audit, and the need for unitholder approvals in case of changes to the terms and conditions of subordinate units.

Employee Incentives for REIT or InvIT Management

Any company or LLP or body corporate incorporated in India which manages assets and investments of the REIT or InvIT and undertakes operational activities of the trust constitutes a manager of the REIT[5] or Investment manager of InvIT[6] (collectively referred to as “Management”), respectively. In its Consultation Paper[7], SEBI proposes Unit Based Employee Benefits (“UBEB”) catered toward Employees of the Manager of REIT or Investment Manager of InvIT (“REIT or InvIT Employees”), in the hope that structure would foster better alignment of REIT or InvIT Employee interests with the respective trust.

Key elements of this framework include the creation of a distinct Employee Benefit Trust (“EBT“) at the discretion of the Management of the respective trusts. EBTs are designed to acquire units of REIT or InvIT from the shareholders of the Management or via subscription in lieu of management fees. If units are allotted to the EBT in exchange for management fees, specific conditions come into play, including the requirement for approval by 75% of unitholders and considerations for pricing based on factors like net asset value and market price. Importantly, units of such nature cannot be sold or transferred for purposes other than that of employee benefit. The framework additionally ensures regulatory compliance by imposing SEBI restrictions[8] on the Manager, Investment Manager, and associated businesses. The Nomination and Remuneration Committee is responsible for creating guidelines that guarantee conformity to securities regulations, with a focus on legal compliance and transparency.

Analysis

The proposed framework under the consultation paper appears to be comprehensive and addresses several important aspects such as eligibility, voting rights, approval processes, and disclosure requirements, providing a robust structure for market participants.  Also, the proposal regarding the creation of a separate EBT and mechanisms for it to receive REIT or InvIT units is aimed at balancing overall trust interest with employee incentives, emphasising transparency and accountability of management. While the framework aligns interests and emphasises transparency, it allows for the issuance of units to be done only once a year, within sixty days after the completion of the annual valuation exercise, which seems excessive in light of the rapid real estate market fluctuations, potentially leading to the EBT acquiring the unit at a price higher than market value. 

References:

[1] Consultation paper on Framework for issuance of subordinate units and Unit Based Employee Benefits – REITs and InvITs, available at https://www.sebi.gov.in/reports-and-statistics/reports/dec-2023/consultation-paper-on-framework-for-issuance-of-subordinate-units-and-unit-based-employee-benefits-reits-and-invits_79760.html

[2] Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations 2014 [Last amended on February 14, 2023], available at https://www.sebi.gov.in/legal/regulations/feb-2023/securities-and-exchange-board-of-india-real-estate-investment-trusts-regulations-2014-last-amended-on-february-14-2023-_68061.html

[3] Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 [Last amended on February 14, 2023], available at https://www.sebi.gov.in/legal/regulations/feb-2023/securities-and-exchange-board-of-india-infrastructure-investment-trusts-regulations-2014-last-amended-on-february-14-2023-_68062.html

[4] SEBI’s Hybrid Securities Advisory Committee (“HySAC”) deliberated on November 15, 2022

[5] Reg. 2(1)(w) of the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations 2014 [Last amended on February 14, 2023], available at https://www.sebi.gov.in/legal/regulations/feb-2023/securities-and-exchange-board-of-india-real-estate-investment-trusts-regulations-2014-last-amended-on-february-14-2023-_68061.html

[6] Reg. 2(1)(zf) of the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 [Last amended on February 14, 2023], available at https://www.sebi.gov.in/legal/regulations/feb-2023/securities-and-exchange-board-of-india-infrastructure-investment-trusts-regulations-2014-last-amended-on-february-14-2023-_68062.html

[7] Decided on the basis of deliberations of SEBI’s Hybrid Securities Advisory Committee (“HySAC”) on February 28, 2023 and June 1, 2023

[8] Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 [Last amended on November 24, 2022], available at https://www.sebi.gov.in/legal/regulations/nov-2022/securities-and-exchange-board-of-india-prohibition-of-insider-trading-regulations-2015-last-amended-on-november-24-2022_65864.html and the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 [Last amended on January 25, 2022], available at https://sebi.gov.in/legal/regulations/jan-2022/securities-and-exchange-board-of-india-prohibition-of-fraudulent-and-unfair-trade-practices-relating-to-securities-market-regulations-2003-last-amended-on-january-25-2022-_55604.html

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Photo by Christian Wiediger on Unsplash

The proposed framework under the consultation paper appears to be comprehensive and addresses several important aspects such as eligibility, voting rights, approval processes, and disclosure requirements, providing a robust structure for market participants.  Also, the proposal regarding the creation of a separate EBT and mechanisms for it to receive REIT or InvIT units is aimed at balancing overall trust interest with employee incentives, emphasising transparency and accountability of management. While the framework aligns interests and emphasises transparency, it allows for the issuance of units to be done only once a year, within sixty days after the completion of the annual valuation exercise, which seems excessive in light of the rapid real estate market fluctuations, potentially leading to the EBT acquiring the unit at a price higher than market value. 

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