2010 An unforgetable year for investors

To educate investors about dos and don’ts of investment, National Stock Exchange (NSE) launched investor awareness campaign on Rajdhani Express trains on selected routes in April 2010. The campaign was started in Rajdhani trains running from New Delhi to Chennai, Bangalore and Thiruvananthapuram. The exchange started the same on Delhi - Sealdah Rajdhani as well in October. The coaches bear slogans in English and Hindi, like ‘soch kar, samajh kar, invest kar’. NSE also started awareness campaign through the suburban trains in Mumbai and Metro Trains in Delhi. NSE’s initiative wasn’t the only step taken for the sake of investors last year. In fact, 2010 has recorded a number positive things for investors.

2010 has been an eventful year, in more ways than one, having shaped and even re-written history. Role of Securities and Exchange Board of India (frequently abbreviated SEBI), the regulator for the securities market in India, has been instrumental behind these changes. In this article, we will discuss regulatory changes this year in context of stock markets and mutual fund industry.

· Pursuant to the circular of SEBI dated October 23, 2009, Bombay Stock Exchange (BSE) and NSE jointly decided the revision of market open timing to 9 AM instead of 9:55 AM, effective from January 4, 2010.

· In March 2010, SEBI barred fund houses from tapping the unit premium reserve to distribute dividends. Instead, it directed mutual funds to pay dividends only from realised gains, a move that has drawn hushed protests from the industry.

· On April 6, 2010, SEBI said that from May 1, all companies going for an IPO should get their shares listed within 12 days after the close of the offer. The period was 22 days earlier.

· SEBI asked all AMCs to disclose investor complaints on their respective websites as well as in their annual reports in a bid to protect investor interest and bring in more transparency. Fund houses were asked to disclose last year’s complaints by 30 June 2010.

· On July 1, 2010, depository participants (DPs) were directed to refund the balance amount if the beneficial owner closes or shifts his/her demat account before the expiry of the period for which the charges have been levied.

· Capital market regulator SEBI extended Application Supported by Blocked Amount (ASBA) to mutual funds as well. As per SEBI guidance, a compulsory ASBA facility was mandated for all NFOs from July 1, 2010.

· Concerned over brokers misusing the funds lying in investors’ trading accounts, SEBI, in August 2010, asked brokers to return the clients’ unutilised cash at the end of every month or quarter. Besides, brokerages were directed to send out a monthly or quarterly statement of funds, as per the client’s choice.

· As BSE launched its mobile trading platform on September 21, 2010, investors were now able to buy and sell shares through their mobile phones. A month ago, SEBI had given permission to the stock exchanges and brokerage houses to offer mobile trading services to their clients. Soon thereafter, National Stock Exchange started the same.

· Capital market regulator SEBI, in a circular released in August 2010, curbed the use of equity derivatives by mutual funds, including barring them from selling options contracts. The ban was effective October 1.

· Association of Mutual Funds in India (AMFI), an apex body of all Asset Management Companies (AMC), specified that after 1 September, all new agent registration as well as those coming up for renewal would need to comply with the KYD norms before they can be permitted to sell MF schemes. Existing agents were given time till February 2011 to comply with the KYD norms.

· To reduce price volatility due to multiple matching of orders at a single price, for better price discovery and to dilute market impact, the country’s two premier bourses- NSE and BSE- started 15-minute pre open session from October 18, 2010.

· SEBI increased investment limit in IPO (initial public offer) or FPO (follow-on public offer) for retail investors to Rs 2 lakh from Rs 1 lakh. However, market regulator had announced to increase the limit in October 2010, but it got implemented from this issue only which came in November 2010.

· SEBI also reduced the new fund offer period for mutual funds. The market regulator reduced the time period of NFOs to 15 days from 30 days for open ended schemes and 45 days for close ended schemes.

· SEBI asked mutual funds to quote the dividend declared on their various schemes in absolute Rupee terms, and not as a percentage. So far, most fund houses declared the dividend as a percentage.

· In order to protect the interest of the investors, AMFI issued guidelines to all AMCs advising them not to accept third party cheques in respect of Mutual Fund Investments (with a few exceptions) effective from November 15, 2010.

· Concerned that mutual fund schemes are becoming too complex for average investors, SEBI asked several asset management companies to rework some proposed new schemes and file offer documents afresh. The regulator was particularly skeptical about capital protection schemes.

· The threshold limit for KYC (know-your-customer) compliance for all individual investors was changed from Rs.50000 to Nil. With effect from 1 January 2011, KYC compliance is a prerequisite for investment in mutual fund by individual investor from this effective date irrespective of the amount of investment.