Sebi bans mutual funds from standstill pacts; clears new DVR framework

The Securities and Exchange Board of India (SEBI) has approved a new framework for issuing DVR (Differential Voting Right) shares from July and banned mutual funds entering standstill agreements with any company. SEBI Chairman Ajay Tyagi told media persons after the board meeting in Mumbai that it has been decided to ban mutual funds from entering into standstill pacts with companies apart from making them hold at least 20 per cent assets of liquid funds in cash equivalents.

There is also a cap on the sectoral limit in liquid funds at 20 per cent. If royalty is more than 5 per cent than required, it would require shareholder nod. Coming down heavily on MF players who in recent past chose to use shareholders fund to buy out the debt of bleeding invested companies, he said mutual funds can't have standstill agreements with companies. We have taken action against mutual funds which had standstill pact with companies.

Besides DVR, the regulator also discussed in-principal approval for changes in the method of calculation of net asset value, with a view to tackling the problem of concentration of asset under management with just 10 asset management companies and increasing the scope of the definition of encumbrance.

The board also approved guidelines for share pledging. Tyagi also said Sebi has started the adjudication process against some credit rating agencies. He said the regulator has completed its probe into the Whatsapp leaks last and the report will be put into the public domain shortly.