SEBI (Annual Report) Rules 2021: A Complete Guide

The Securities Exchange Board of India (SEBI), by way of the powers conferred under section 29 (2) (e) of the SEBI Act 1992, has notified SEBI (Annual Report) Rules 2021. The same was done on 12.03.2021 through Notification No G.S.R. 176 (E).

Also, it shall be noted that the newly implemented rules has superseded the previous rules named SEBI (Annual Report) Rules 1994 and will come into force immediately from the date of publication in the Official Gazette.

In this blog, we will cover the newly introduced SEBI (Annual Report) Rules 2021 in detail.

Key Provisions of the SEBI (Annual Report) Rules 2021

The key provisions of the SEBI (Annual Report) Rules 2021 can be summarised as:

• The term Act denotes the Securities Exchange Board of India Act 1992;
• The term Board denotes the Securities Exchange Board of India formed under the provisions of section 3 of the Act;
• It shall be noted that all other words & expressions, which are used in the said rules, but are not defined, and are defined in the SEBI Act, then, in that case, such words will have the same meanings and definitions respectively assigned to them in the Act;
• The Board, i.e., SEBI, needs to submit a report to the Central Government providing a true, fair, and full account of all its activities, policies, plans, and programmes undertaken during the previous financial year. The same will be furnished in the Annexure attached to these rules;
• It shall be taken into consideration that the report drafted will be submitted within a period of ninety days, starting from the end of each financial year;

Also, Read: Legal Entity Template Rolled Out by SEBI

Key Provision of the SEBI’s Annual Report Format

The key provisions of the SEBI’s Annual Report Format are as follows:

Introduction

• Year of Review;
• Performance Highlights;
• Looking Forward

Review of the Financial Market

In this section of the report, the board needs to include an analysis of the Indian economic and investment environment, together with a comparison with the developed and peer countries. Also, it requires to specify the potential risk factors, stress factors mentioned through market signals, etc.

Primary Market

The different types of markets included under this head are as follows:

Equity Markets

• Policy Developments;
• Market Activity & Trends Observed (comprising of details of applications received for public issuance and approved during the previous financial year, fundraising under various categories, the median time taken for the regulatory approval on an aggregate basis);

Debt Market and Hybrids

• Policy Developments;
• Market Activity & Trends Observed (comprising of details of applications received for public issuance and approved during the previous financial year, fundraising under various categories, the median time taken for the regulatory approval on an aggregate basis);

Corporate Governance and Corporate Restructuring

This section includes details concerning the following:

• Deals of Merger and Acquisition;
• Regulatory action undertaken by SEBI for Improving Transparency and Enhancing Governance;
• Issuance of Observations on the Offer Documents;
• Open Offers;
• Details regarding the Listed Companies being wound-up;
• Details of the Defaulter Companies;
• Regulatory coordination with the Ministry of Corporate Affairs (MCA) and the consequent steps taken by the Board;

Associated Intermediaries

The term Associated Intermediaries include the following:

• Merchant Bankers;
• Bankers to an Issue;
• Underwriters;
• Debenture Trustees;
• Registrar to an Issue & Share Transfer Agents, etc.;

Also, this section covers details, such as follows:

• New Registrations;
• Median Time Taken for the Approval of Registrations on an aggregate basis;
• Total Number of Applications for Registrations Rejected, Suspended or Cancelled;
• Regulation and Supervision of activities of the Associated Intermediaries with the Securities Market;

Secondary Market

The different types of markets included under this head are as follows:

Cash Markets

This specific secondary market includes both Equity and Debt and Hybrid Market and includes the Policy Developments, and Market Activity & Trends Observed regarding the same.

Also, it shall be noted that this particular sub-head will include Risk Management Measures, such as details of market concentration as well.

Equity Derivatives Markets

• Policy Developments;
• Market Activity & Trends Observed (comprising of details of segment and participant wise performance, a new product which requires regulatory approval from SEBI, the median time taken for the regulatory approval on an aggregate basis, and how pertinent these products are for market participants and market developments);
• Risk Management Measures (comprising of details of market concentration, such as product and participants-wise, contracts suspended or banned from trading, etc.);

Commodity Derivatives Markets

• Policy Developments;
• Global Commodity Price Movements;
• Market Activity & Trends Observed (comprising of details of segment and participant wise performance, a new product which requires regulatory approval from SEBI, themedian time taken for the regulatory approval on an aggregate basis, how pertinent these products are for market participants and market developments, and the commodities that are physically delivered by the platform; warehouse capacity utilisation for exchange purposes);
• Risk Management Measures (comprising of details of market concentration, such as product and participants-wise, contracts suspended or banned from trading, etc.);

Currency Derivatives Markets

• Policy Developments;
• Global Currency Movements & Performance of Indian National Rupee;
• Market Activity & Trends Observed (comprising of details of segment and participant wise performance, a new product which requires regulatory approval from SEBI, the median time taken for the regulatory approval on an aggregate basis, how pertinent these products are for market participants and market developments, andOver the Counter market v. exchange traded markets);
• Risk Management Measures (comprising of details of market concentration, such as product and participants-wise, contracts suspended or banned from trading, etc.);

Interest Rate Derivatives Markets

• Policy Developments;
• Market Activity & Trends Observed (comprising of details of segment and participant wise performance, a new product which requires regulatory approval from SEBI, the median time taken for the regulatory approval on an aggregate basis, and how pertinent these products are for market participants and market developments);
• Risk Management Measures (comprising of details of market concentration, such as product and participants-wise, contracts suspended or banned from trading, etc.);

Market Infrastructure Institutions

• Stock Exchanges;
• Clearing Corporations;
• Depositories;

Associated Intermediaries

• Trading members or Brokers;
• Clearing Members;
• Investment Advisors;
• Research Analysts;
• Depository Participants;
• Approved Intermediaries (stock lending schemes);
• Approved Associated Intermediaries with the Commodity Market;
• KYC Registration Agencies (KRA);
• Custodians;
• Credit Rating Agencies (CRA);
• Proxy Advisors (comprising of details, such as new registrations/ suspension / cancellation of the registration, and their market conduct related issues, etc.)

Fund Management Activities

The different types of fund management activities included under this head are as follows:

Mutual Funds

• Policy Developments;
• Market Activity & Trends Observed (comprising of details of the schemes launched during the financial year, AUM (Assets Under Management), fund inflow or outflow, instrument or sector-wise deployment, scheme-wise returns (i.e.,the total number of schemes, wherein the return is below zero, between 0 to 5%, 5 to 10%, etc.);
• Risk Management Measures (comprising of details of the concentration of investments, NPA (Non Performing Assets), instances of funds diversion,the quantum of the unclaimed redemption amounts, and the unclaimed dividends, etc.);

Alternative Investment Funds (AIFs)

• Policy Developments;
• Market Activity & Trends Observed (comprising of a categorized list of AIFs,total funds raised and invested, AUM, fund inflow or outflow, instrument or sector-wise deployment, etc.);
• Risk Management Measures (comprising of a categorized list, details of the concentration of investments, NPA (Non Performing Assets), instances of funds diversion, the quantum of the unclaimed redemption amounts, and the unclaimed dividends, etc.);

Portfolio Manager

• Policy Developments;
• Market Activity & Trends Observed (comprising of a categorized list of Portfolio Managers, total funds raised and invested, AUM, fund inflow or outflow, instrument or sector-wise deployment, etc.);
• Risk Management Measures (comprising of a categorized list of investors, details of the concentration of investments, NPA (Non Performing Assets), instances of funds diversion, the quantum of the unclaimed redemption amounts, and the unclaimed dividends, etc.);

Collective Investment Scheme (CIS)

• Policy Developments;
• Market Activity & Trends Observed (comprising ofdetails of both interim and final orders passed by the  board on the deemed CIS or CIS, the details concerning the restitution of money to the investors by SEBI in the case of unregistered CIS);

Real Estate Investment Trusts (REITs) & Infrastructure Investment Trusts (InvITs)

• Policy Developments;
• Market Activity & Trends Observed (comprising of a categorized list of Business Trusts, Net Asset Value, and Funds raised);
• Risk Management Measures (comprising of NPAs (Non Performing Assets) and instances of diversion of funds, etc.)

Associated Intermediaries

Distributors Policy Developments;

Foreign Portfolio Investors & Foreign Venture Capital Investors

• Policy Developments;
• Market Activity & Trends Observed (comprising of AUM, product-wise investments, Foreign Portfolio Investment thresholds, and their utilization, etc.)

Credit Rating Agencies

• Policy Developments;
• Market Activity & Trends Observed (comprising of fresh ratings and the ratings reviewed by CRAs, enforcement details of the CRA Regulations);
• Risk Management Measures (comprising of instances of downgrades ratings);

Protection of Investors Interest

The different measures taken to protect the interests of consumers are as follows:

Investors Education

• Investor awareness programmes, seminars and workshops inclusive of media campaigns (Statewise details) conducted by SEBI andMIIs;
• Dedicated Investor Website;
• Visits to SEBI;
• Impact Assessment of the Education and Awareness Programmes;
• New initiativeswere undertaken for the Investor Education;
• Financial Education Workshops and Activities conducted by the SEBI-trained resource personnel;
• Joint programmes with the Stock Exchanges and Depositories, etc.

Investors Centric Policy Measures

• Primary Market;
• Secondary Market (equity, commodity, debt, currency, interest rate etc.)
• Market Infrastructure Institutions;
• Intermediaries;
• Foreign Portfolio Investors;
• Foreign Venture Capital Investors;
• Fund Management Activities, such as follows:

1. Mutual funds;
2. Portfolio Managers;
3. REITs and InvITs;
4. Collective Investment Schemes (CIS);
5. Alternative Investment Funds (AIF);
6. Investment Advisors;

• Credit Rating Agencies and Debenture Trustees;

Redressal of Investors Grievance

• Total number of Investor Grievances Received and Redressed;
• Analysis of the investors’ feedback on the provided resolutions provided / satisfaction analysis
• Investor feedback for the calls answered on SEBI toll-free helpline number;
• Investor assistance, i.e., replies to queries, etc;
• Issue of no objection certificates (NOCs) post Initial Public Offerings;
• Complaints or arbitrage cases with the Stock Exchanges;

Investor Protection Fund (IPF)

• A Detailed report on the inflow of money into IPF or to the beneficial owner protection funds of SEBIs and MIIs;
• A Detailed report on the utilization of Funds;

Technology

• Cyber Security;
• Technology in Markets Ecosystem;
• Technology in SEBI;
• FinTech and RegTech initiatives;
• Other Developments;

International Engagements

• International engagements that have implications on the Indian Markets;
• Issues highlighted during several engagements;

National Institute of Securities Markets

• Academic Programmes;
• Training Programmes;
• Research and Publications;
• Investor Education & Financial Literacy;
• Certification of thepersons associated in the securities market;
• Development & Administration of the CPEP (Continuing Professional Education Programme);
• Accreditation of Certification Exams;
• Joint Certifications;
• Corporate Governance;
• Sources of Funds & Major Areas of Expenditure;

Organizational Matters

• SEBI Board;
• Audit Committee;
• SEBI Offices;
• Human Resource Activities, such as trainings, etc.;
• Research Activities, such as working papers, etc.;
• Promotion of Official Language;
• Internal Inspection Department;
• Vigilance Cell;
• RTI Activities;
• Parliament Questions;
• Fees and other charges;
• Changes made to the Delegation Order;
• Sources of the  Funds and Major Areas of Expenditure;

Conclusion

In a nutshell, the SEBI (Annual Report) Rules 2021 was implemented by the SEBI on 12.03.2021 through Notification No G.S.R. 176 (E). Also, the said rules has superseded the previous rules named SEBI (Annual Report) Rules 1994and has come into force immediately from the date of publication in the Official Gazette.

Also, Read: SEBI Circular on Modification in the Mutual Fund Regulations

Official Copy of the SEBI (Annual Report) Rules 2021

Official-Copy-of-the-SEBI-Annual-Report-Rules-2021