Regulatory Updates #21: SEBI on Portfolio Managers, RBI on Basel III framework & more

Bar & Bench will bring you the latest regulatory and policy updates from different ministries and regulatory authorities. In this edition of the Bar & Bench Regulatory Updates, we analyse the latest notifications by the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI).SEBI eases trading norms for derivatives.In order to ease trading requirements for currency derivatives, SEBI last week clarified that the position limit linked to open interest will be applicable at the time of opening a position. Further, such positions will not be required to be unwound in the event of a drop of total open interest in a currency pair at the stock exchange..The open interest refers to the number of futures and options contracts outstanding at a given point for a client..However, in such a scenario, the eligible market participants will not be allowed to increase their existing positions or create new positions in the currency pair till they comply with the applicable limits..SEBI issues consultation paper on ‘Portfolio Managers’ norms.The Central Board of Direct Taxes had inserted Section 9A in the Income Tax Act, 1961 (IT Act) and subsequently passed guidelines for its application, incentivising offshore fund managers to relocate to India. SEBI recently issued a consultation paper aligning its provisions with the the IT Act by proposing a relaxed framework which will allow such fund managers to act as ‘portfolio managers’ in India..Under the proposed amendments to the SEBI (Portfolio Managers) Regulations, 1993 (PMS Regulations), the paper, inter alia, provides for:.A separate section on ‘Eligible Fund Managers’ (EFM), which specify conditions that will apply to their activities as portfolio managers;The procedure to be followed by a SEBI-registered portfolio manager to function as an EFM; EFM’s obligations and responsibilities;.The paper further provides for the non applicability of certain provisions of the PMS Regulations on EFMs which, inter alia, include:.Requirements regarding fees and charges, including High Water Mark Principle, disclosure of fees and charges etc;Requirements of providing the Disclosure Document by the portfolio manager to the client at least 2 days prior to entering into agreement;Requirement of minimum investment that a portfolio manager can accept..Basel III reporting requirements revised.Until last week, in compliance with the Basel III Capital Regulations, banks were required to submit with the RBI, details of the debts raised along with the offer documents upon completion of issue process..Basel III standards were issued by the RBI, after the financial crisis of 2008, to improve the banking sector’s ability to absorb the shocks arising from financial and economic stress, thus reducing the risk of spill over from the financial sector to the real economy..Acknowledging the fact that banks largely remain compliant with the Basel III framework, RBI has decided to do away with the requirement of filing of the offer document. However, details of the duly certified copy of the debt raised are still required to be filed with the RBI..RBI releases Draft Guidelines for Capital for CCR and Exposure to CCPs.Last week, the RBI released draft guidelines for computing exposure for counter party credit risk (CCR) arising from derivate transactions and capital requirements for bank exposures to central counter parties (CCPs) following the announcement made in April bi-monthly policy by Raghuram Rajan..These guidelines are based on the framework finalised by the Basel Committee on Banking Supervision (BCBS), which is the primary global standard-setter for the prudential regulation of banks. India is among the 28 countries which are a part of the BCBS..All member countries are required to implement the revised standards by 2017. Comments from the public will be received till 22 July, 2016 after which the RBI will come out will the final guidelines.