Sebi board gives nod for fee hike, budget for FY15

Market intermediaries and corporates will soon have to pay higher fees to the Securities and Exchange Board of India (Sebi) as its board on Thursday approved proposals for a fee hike to bolster financial resources of the capital markets regulator.

Sebi's board also approved the budget estimates for the next financial year (2014-15) beginning April 1, while investor protection, capacity building, enhanced market surveillance and investigation functions have been identified as key areas.

After a board meeting held in Mumbai on Thursday afternoon, Sebi said that the fee revision proposals are based on recommendation of the Committee on Rationalisation of Financial Resources (CRFR).

CRFR has suggested a hike in fees charged by Sebi to various market intermediaries, as also by listed and to-be-listed companies.

It had also recommended imposition of fees for various services offered by Sebi, except for handling investor complaints. Besides, fees charged for consent settlement and informal guidance were proposed to be hiked.

Sebi said its board has approved the upward revision of fees while ensuring minimal impact on investors.

"The same will be notified through appropriate circulars to be issued in due course," it added.

According to sources, the fee hike has been proposed by CRFR for brokers, stock exchanges and mutual funds, among others, as also the charges for various offer documents and for takeovers.

Sebi further said that its budget for the financial year 2014-15 has been prepared keeping in view the need to place greater emphasis to achieve the mandated statutory objectives.

The board also identified four core areas for Sebi's activities in 2014-15.

These include strengthening the investor awareness and education measures, enlarging reach amongst investors through regional and local offices, enhanced focus on capacity building, and raising standards of supervision and enforcement functions in market place such as strengthening market surveillance and investigation functions.

The efforts on capacity building front would include hiring of additional staff and providing necessary training to meet the ever-changing challenges faced by Sebi.

This follows a call by Prime Minister Prime Minister Manmohan Singh that Sebi needs to "constantly upgrade and improve", especially in the wake of number of entities that it needs to regulate continues to go up.

The fee hike is aimed at helping Sebi generate resources for its regulatory and investor-centric activities, as a slump in capital markets has adversely impacted its finances.

The proposed revision includes pushing back the fees to the level seen before a reduction was announced in 2009 for some intermediaries.

CRFR submitted its report to Sebi earlier this month after detailed discussions and a "thorough study" of various parameters.

With many of Sebi orders getting challenged in tribunal and courts, the panel has also suggested recovery of legal expenses incurred in such litigations from penalties imposed by the regulator on defaulters before crediting the same to the government's coffers.

The regulator has incurred litigation expenditure in the range of Rs 4-5 crore in each of the past three financial years, while such expenses could be even higher in the current fiscal year that ends in March.

The CRFR panel had also suggested charging 'processing fees' for various service requests from companies, stock exchanges and market intermediaries, as many of such services are being provided for free despite significant costs incurred by the regulator in such matters.

With regard to the services proposed to be charged by Sebi, the panel had suggested a fee of Rs 50,000 for permission to set up a wholly-owned subsidiary bbroad, and Rs 10,000 each for requests such as change of custodian, change in registered office or name and change in managing director.

As per Sebi estimates, the regulator's operational income (fees from intermediaries) is expected to be about Rs 165 crore in the current fiscal year and at about Rs 196 crore in 2014-15.

However, a revision in fee structure as per CRFR recommendations can boost Sebi's operational income to Rs 378 crore in 2014-15.

At the current rates, Sebi is expected to post a deficit of Rs 66 crore on operational account in 2013-14, while the gap can further increase to about Rs 85 crore in next fiscal year.

However, a revision in fees can help Sebi post a surplus of about Rs 98 crore in 2014-15.

Before the CRFR review, Sebi's total income for 2014-15 is estimated at Rs 372 crore, which would include Rs 196 crore as fees from intermediaries, Rs 158 crore as income from investments and about Rs 18 crore as miscellaneous income.

With the adoption of CRFR recommendations, the total estimated income may rise to Rs 554 crore on account of an increase in fee income.

After taking into account capital and extraordinary expenditure, the regulator expects to post overall deficit of Rs 146 crore in the current fiscal year. It is estimated at about Rs 77 crore for the next fiscal year at current rates of fees.

However, a revision in fees as per CRFR recommendations would help the regulator post an overall surplus of Rs 106 crore.

As per the recommendations, the application fee for mutual funds could be hiked to Rs 5 lakh from the existing Rs 1 lakh, while registration fee can be maintained at the current level of Rs 25 lakh.

The panel had also recommended that the regulatory fee for stock exchanges having turnover in excess of Rs 10 lakh crore at "Rs 1 crore plus 0.00006 per cent on turnover in excess of Rs 10 lakh crore". The overall regulatory fee would be capped at Rs 20 crore.

For stock brokers, the proposal is to restore 2006 fee structure level - charging a fee of Rs 20 per 1 crore of turnover.

The committee has also suggested that filing fee for offer document, right issues and takeovers should be "restored at the level of 2007 with further streamlining across slab to make it more consistent".

Sebi believes that various investor-centric initiatives as well as the ever increasing regulatory mandate warrant not only identification of new resources but also aligning some existing levies to the changed market structure.

In the past, the capital market watchdog had hiked the fees for various market intermediaries in 2006, while a reduction was also announced in 2009.

The downward revision in 2009 was undertaken with a view that the fees levied by statutory authorities like Sebi should be adequate enough to meet revenue expenses fully and leave a little surplus for capital expenditure.

However, the committee felt that the enhanced scope and role of market regulatory in today's time, which requires much higher financial commitment in order to remain effective and efficient, was not visualised then.

Also, the anticipation of market volumes having a secular trend of growth has not materialised and decline in primary and secondary market volumes as led to reduced collection of fees by Sebi.

The review was undertaken by the internal CRFR committee as per recommendations of Sebi's audit committee.

The Sebi board is also believed to have discussed the need for banks and financial institutions from public sector to be considered as 'public shareholders' in stock exchanges. This view has been rejected by the Finance Ministry.

Sources said the board also discussed the requirement to fill two posts of executive directors at Sebi, which will fall vacant later this year.