Lawyer Monthly Magazine - July 2019 Edition

offline testing of their proposed solutions in isolation from the live market, subject to fulfillment of the eligibility criteria, based on market related data made available by Stock Exchanges, Depositories and Qualified Reg- istrar and Share Transfer Agents (QRTAs). The components and structure of the Innovation Sandbox can be broadly classified into design, legal and administrative categories as detailed in the circular. Further, the eligibility criteria for inclusion into the Innovation Sandbox are as follows: (a) Applicability - Conceptually, the Innovation Sandbox framework is applicable to any entity, who intends to innovate on the products, services, and/ or solutions for the securities and commodities market in India. (b) Genuine need to test - The applicant should have a genuine need for testing the solution using resources available in the Innovation Sandbox. The applicant should be able to postulate that the solution cannot be developed properly without testing in the Innovation Sandbox. (c) Testing readiness of the solution - The applicant should have the necessary resources to support testing in the sandbox. The applicant must show testing plans with clear objectives, parameters and success criteria. (d) Post-testing strategy - The applicant should be able to postulate their post-testing plan. (e) Direct benefits to consumers - The solution should offer identifiable benefits (direct or indirect) to consumers and to the capital market and the Indian economy at large. (f) Secure - The solution shall be validated for cybersecurity parameters. The applicant is required to submit a cyber- security compliance certificate as per SEBI’s Cyber Security guidelines. The Securities and Exchange Board of India publishes the report of the working group set up to recommend amendments to the FPI Regulations On 24 May 2019, SEBI published a report of the working group on “FPI Regulations” and put it up for public comments. The report contains recommendations with respect to FPI registration process, know your client (KYC) and simplification of documentation, investment restrictions and other aspects. Certain key recommendations proposed by the working group are as follows: (a) Ease of access - fast track on-boarding process for select category II FPIs, review of broad based condition for appropriately regulated entities, pension fund to be considered for category I FPI registration, deemed broad based status for insurance/ reinsurance entities, simplified registration for multiple investment manager (MIM) structures, entities established in the international financial services centre (IFSC) be deemed to have met the jurisdiction criteria for FPIs, etc. (b) Simplification of documen- tation - removal of ‘opaque structure” definition, simplified KYC documentation for cat- egory III FPI, KYC reliance on the same group regulated entity of custodian for non-PAN docu- ments, etc. (c) Review of Investment re- striction - Liberalized investment cap, harmonization between investment restrictions in FPI regulations and the applicable foreign exchange regulations, reclassification of investment from FPI to FDI, permitting FPIs for off-market transactions, re- view of restriction on sovereign wealth funds for investment in corporate debt securities etc. (d) Other aspects - strength- ening of clubbing restrictions, alignment between FPI and al- ternative investment fund (AIF) routes, strengthening of offshore derivative instrument (ODI) framework, etc. Framework for issuance of differential voting rights shares On 27 June 2019, SEBI issued a framework to enable issuance and listing of shares with differential voting rights, commonly known as DVRs in India. Such shares have rights disproportionate to their economic ownership. The key proposals approved by SEBI Board are as follows: (a) Eligibility: A company having superior voting rights shares (SR shares) would be permitted to do an initial public offering (IPO) of only ordinary shares to be listed on the main board, subject to fulfillment of eligibility requirements of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 and the following conditions: (i) The issuer company is a tech company (as per the definition in Innovators Growth Platform) that is intensive in the use of technology, information technology, intellectual property, data analytics, bio- technology or nano-technology to provide products, services or business platforms with substantial value addition. (ii) The SR shareholder should be a part of the promoter group whose collective net worth does not exceed INR 500 Crores. While determining the collective net worth, the investment of SR shareholders in the shares of the issuer company shall not be considered. (iii) The SR shares have been issued only to the promoters/ founders who hold an executive position in the company. (iv) The issue of these SR shares has been authorized by a special resolution passed at a general meeting of the shareholders. 27 Clasis Law JUL 2019 www. lawyer-monthly .com